Trump’s $1,000 plan: Can Trump Accounts close America’s wealth gap? | This is America

This is America, and this is Wall Street, where major stock indexes have hit record highs this year. Donald Trump points to the stock market as evidence the economy is booming, but can that wealth be transferred to average Americans who are still dealing with a cost-of-living crisis? I'll have more on that coming up, but first, over to Alex Marquardt in our Washington, D.C. studio. Thanks very much, Kristen. Donald Trump does celebrate those stock market milestones, proudly claiming them as proof that he is improving the economy for the American people. But those successes aren't necessarily making their way from Wall Street to the rest of the United States, with nearly half of American households not earning enough to make ends meet. That's according to the Brookings Institute. The wealth gap is now the widest it has been in three decades. So how can the average Americans benefit from this? Right now there's no inflation. Everybody thought there would be. All we have is billions of dollars of cash pouring into our country. We have a great thing going. I think we're going to have the richest economy you've ever seen. We have money coming in that we've never even thought about. We had the best economy in the history of our country, but we're blowing it away now. When this stuff starts opening up, you're not going to see anything like it probably ever again. Inflation is plummeting. Incomes are rising fast. The roaring economy is roaring like never before. The stock market hit a new high today again, and oil is going to come charging down. And with oil comes everything else. Inflation is way down. That means prices are coming way down. And we're doing a great job. One of Donald Trump's solutions to the wealth gap is his initiative called Trump Accounts. He's on a mission to get more Americans invested in the stock market. Al Jazeera's Kristen Salumi has more from New York. The U.S. president rang the opening bell of the New York Stock Exchange at the White House, surrounded by what he hopes will be the next generation of investors. On Saturday, July 4th, our administration deposited one-time seed contributions, $1,000 each into the Trump Accounts of over 500,000 American children. It's a lot. The heads of the New York Stock Exchange and NASDAQ were also on hand to pledge their support Now available to every U.S. citizen born between 2025 and 2028. Capitalism and the ability to participate in this country is the best thing that we can give to the next generation. Children who qualify receive $1,000 from the government to be invested in the stock market. No withdrawals allowed until the child turns 18. Families can add up to $5,000 a year tax-free. Those who do could have as much as $180,000 saved in that time, based on average market performance. And even those who don't add another cent would likely see their account grow to around $3,500. Currently, about 60% of all Americans have some money in the stock market, most through their retirement savings accounts. The Trump accounts are an attempt to increase the percentage of Americans who invest. Is your money working hard for you? Do you know where your money is today, is the big question. Judy Herbst conducts free workshops on investing as the executive director of the non-profit group Savvy Ladies. Build your financial confidence. She believes this will encourage many parents to start accounts they might otherwise be reluctant to. Savings is just savings. That's just cash. How can you grow your money and make your money work harder for you? That is all important. So having the opportunity to have an investment account is very motivating. But Emily Brown-Baker, who's hoping to start a family soon, says there are more pressing issues. I mean, I'll take the free $1,000, but, you know, that just doesn't make what we really need is affordable child care. And any investing comes with some risk, but for a society facing a growing wealth gap, the Trump accounts politically appear to be a safe bet. Kristen Salumi, Al Jazeera, New York. And I'm joined now by Adam Mischel. He is the director of tax policy studies at the Cato Institute, as well as Jeff Ferry, who is the chief economist emeritus at the Coalition for a Prosperous America. Adam, Jeff, thanks so much for being with us. Adam, I want to start with you. You heard there Trump, as he so often does, touting the strength of the stock markets. It's clearly a major marker for him in terms of the health of the economy. But how much of the story of the health of America's economy do those numbers tell us? It's certainly an important part of the story, right? The stock market is just telling you the value of American companies, and that value is dependent on the services and goods they're providing to Americans at every income level. It's not so it's not just the Americans that own those companies, which is a sizable chunk of the population, but all the Americans that are employed by those companies and buying their services. And so I think it is an indicator. It is not the only indicator. But broadly speaking, the economy is also doing pretty well. You have the unemployment remains low. Consumer spending hasn't cratered. So a lot of the sort of doomsday scenarios certainly haven't played out. As we get into this discussion, I just want to take a quick look at how life has gotten more difficult financially for Americans. Between when President Trump first ran for office, that was back in 2016. And today, the lives of average Americans have become much more expensive. Energy, for one, is a leading factor, with prices 70 percent higher than 10 years ago. Next is housing, with the cost of renting or buying a home nearly 50 percent more than it was back in 2016. And even food has seen a major increase of 34 percent over that same period. But the median income for a household has remained relatively stagnant, up just 11 percent. So Jeff, how can markets hit record highs when people can't afford groceries? Well, that's an easy question. The stock market is a popularity contest, really, based on the billions and trillions of dollars that investment funds have to invest. And they're all so hyper excited about the A.I. revolution right now that they've bid up stocks to extraordinary levels. So I think there's a very strong disconnect between what goes on in the financial markets and what goes on in the average daily life of the average American who makes 100 percent of his or her income through his or her job. So a rising tide does not lift all boats? Absolutely not. Adam, when you look at some of the polling out there, only 33 percent of Americans approve of Trump's handling of the economy. And this is, again, as the markets are at record highs. If those numbers are that good across those different indices, why aren't people feeling that? So I think what you described in the statistics there is an inflation story. Americans hate inflation. Prices have gone up. It's eroding real wages. It's making it harder to buy things at the grocery store. And those are all policy decisions. You can see the administration, the war in Iran is raising prices for energy, which goes into things all across the economy. The tariffs raise prices on things coming across the border. The immigration crackdown also makes it harder for people to live their lives and to meet their needs. But most importantly is the massive federal deficit we have, which Republicans talk a big game about. But when the government spends well beyond its means, that turns into inflation. When we have massive deficits, the way that that's made up is through inflation. The government can either raise the revenue through taxes or inflate it away. And the choice they're making is raising prices on Americans, the sort of sneaky hidden tax that's regressive. So Jeff, how do you right-size this economy so more of society actually feels its strength? Well, I've been saying for years now that the big problem in America is that we've allowed all of our high-value industries to emigrate offshore. And we now have millions of workers working in low-wage industries like food and hospitality and so on. And what we need to do is to reshore the industries that pay good wages to workers and invest in this country. Now, the irony is, you mentioned 2016. So since then, we've had Trump, Biden, and Trump as president. And in all three of those administrations, they talked a good game about reshoring industries, but they have not done enough to do that. And so, as you mentioned, the average American household is suffering from stagnating income. They're working in a lower—actually, you know, if you correct for inflation, millions of people are working in lower-wage jobs than they were 10 years ago or 20 or 30 years ago. They're working fewer hours. And meanwhile, costs continue to rise, and there's a number of reasons for that. The worst offenders, as you mentioned, are food, housing, and health care. You didn't mention health care. That's terrible as well. I mean, there are things the government could do to address those problems, but it's not really doing them. It's getting distracted by things like war in the Mideast. You know, every president, you know, going back to Thomas Jefferson, frankly, gets distracted by the excitement of a war in some far-off place and ignores domestic problems. When you look at some of the other indicators, Adam, you've got GDP growing. You've got unemployment low. Consumer sentiment is in the basement. And again, of course, we've already talked about the stock market. So are the traditional measures out of sync with how Americans actually feel? There's some disconnect there where the way Americans are feeling, when you ask people how they see their community doing, they tell you it's very negative, that sentiment. When you say, how are you doing in your life, it's actually a little bit more rosy. But again, the inflation story is what is really dragging people down. Over the longer haul, the story is, I think, much more positive. Over the last decade or so, wages at the bottom have been growing faster than wages at the top. Income inequality has been shrinking. Wages are up over a longer period of time. The problem is this high inflationary cycle we've got ourselves in, which, again, Jeff said that the government could do things here. I want the government to get out of the way. The government is almost always the problem here, rather than the solution. Well, in this case, at least in some regards, the government is stepping up with a new original idea, if you will, that I want to get your thoughts on. As we've heard, one of the Trump administration's major initiatives that they've rolled out to get the American people into these powerful stock markets are the so-called Trump accounts. And it was sold by the Treasury Secretary, Scott Besant, like this on CNBC. Take a listen. Thirty-eight percent of the American public has, or American households, have no stake in our great equity market. That maybe they have jobs at the companies, but they don't participate in the stock appreciation. And I think the Trump accounts are one of the ways that are going to remedy that. So every child under 18 can have one. Children who were born during this administration get a thousand-dollar seed investment from Treasury. So this is a thousand dollars into a fund for every American child. Those funds track the S&P index. Jeff, is this a serious answer to the wealth gap, or is it more symbolic? No, this is classic Donald Trump theatrical, symbolic moves, like coming down a gold-encrusted escalator in 2015. A thousand dollars for an infant today, I mean, it's nice, but by the time he or she is 18 or 21, that'll be worth $3,000 or $4,000. You know, look, the problem is that the average American, the only thing they've got to sell is their labor. They've got to get a job and get a good pay. What we've seen in the last 30, 40 years is gross exaggeration of inequality in this country. According to one study, the top 20 richest people in the U.S. today have wealth which accounts for 12 percent of U.S. GDP. At the height of the Gilded Age, those same people, in other words, Rockefeller and Carnegie and Mellon, they had wealth that accounted for only 3 percent of GDP. So we've concentrated an enormous amount of wealth in a very small tier of rich people, and it's the middle class that are suffering because we do have tax programs that help out the very poor. The problem the Republicans have is they're really interested in the wealthy, and Donald Trump for his entire life has wanted to be well accepted by the very rich of Wall Street where he never was accepted, so now he's groveling to them, and that's fine for him. And the Democrats' problem is they're too interested on transferring money from the middle class and the upper class to the poor, so nobody is looking at the middle class. What I'm interested in is saying, what about the working men and the working women trying to raise a family? They need good jobs at good incomes. Adam, how do you see it? Because you've written that the Trump accounts are a good idea with bad design, so what is good and what would you do to fix it? Yeah, that's exactly right. The Trump account, the idea of a Trump account giving people an easy way to save for their kids early in life is a tremendous idea. The problem is that the accounts are actually designed in a way where this is the least tax advantage thing you can do with your money if you're trying to save for your kids' futures. At Saving for My Children, I should put my money in a 529 or even a taxable account. A Trump account is taxed at higher rates than those other versions, so beyond the $1,000 handout, Trump accounts don't really have a use case, but that doesn't mean that they can't be reformed. The problem is we have about a dozen of these special accounts for saving, and it's the complexity that keeps Americans from fully utilizing them. So simplifying the system, creating what's called a universal savings account that have been used around the world so that people can put their money in and then not have strings attached to it, make it actually tax advantaged, these are the reforms that will give more Americans the ability to access some of that stock market performance that we've been talking about. One phrase that we're hearing more often these days from economists is that this is a K-shaped economy. I want to ask you about that, but our Bernard Smith explains. The K-shaped economy helps explain what's behind the growing gap between the rich and poor in America. So for the top 20% of U.S. workers, those on $175,000 a year, their net worth is up by 25% in the past three years. For the bottom 20%, those making less than $33,000 a year, their net worth has gone up by just 13%. So what explains this divergence? It's housing, stocks and inflation. High earners own 54% of all the mortgages, while those on $33,000 or less own only 3% of the mortgages. And it's rising properties that are a big driver of the wealth gap. Then there's stocks. The top 20% own 76% of all U.S. stocks, and the market has been on an upward trend for the last decade. And lastly, inflation. Not everyone is affected equally. If you're well off, you've felt your cost of living increase by 46%, but those on the lowest wages felt their cost of living go up by 57%. It seems the further you travel down the K, the harder it is to climb back up. Bernard Smith, Al Jazeera, Washington. Jeff, do you see things as starkly as those two branches? Yes, absolutely. I think we are in a K-shaped economy. And I think the spending patterns that you see in certain businesses, you know, the high-end retailers are doing very well, Dollar General is doing very well. It's the middle-income retailers and consumer spending type businesses that are doing less well. So yeah, we have a problem. And, you know, this shouldn't be a surprise to anyone, because the purpose of globalization, which began around 1990, was it was felt that middle-class workers, in particular certain industries, certain unionized workers, were earning too much. So the people who thought they were very smart, many of them advising Bill Clinton, prior to that some of them were advising Reagan. It's not about party. It's about the stupidity of economists who said, let's force American workers to compete with Mexico, China, Malaysia and Indonesia. And what it did is it forced wages down in many industries. And if you look back, you can see that 6 percent of U.S. income has moved from labor to capital over the last 40 years. That's a huge amount of money. That's like a trillion dollars has moved away from workers and towards a return on capital. That's why the stock market's accelerating. And that's why we see more inequality today than we have, you know, according to one survey at any time since 1947. How much of a policy failure is this K-shaped economy, Adam? It is a policy failure, to the extent that if inflation is what's eating into people's wages, making it harder to make ends meet. This is because Washington hasn't focused, has either pursued the wrong policies or hasn't gotten out of the way. I mean, whether it be prices because of increased costs at the gas pump and energy prices or costs of goods and services, taxes on goods coming across the border, the debt and the deficit are also big pressure points on inflation. All of these things could be fixed. Washington is choosing not to fix them. Another record figure that we have, Jeff, is a third of household wealth now sits in stocks. A third. So if the markets turn sharply tomorrow, who gets hurt the worst? Well, if the markets collapse, yes, then the very rich will get hurt. I mean, Elon Musk may have to suffer the ignominy of going from a trillionaire to a centibillionaire. I mean, you're focusing a little too much on wealth. What we need to focus on in our economy is income. How do people earn good incomes? And as I keep saying, most people don't earn good incomes through investments. I mean, part of the housing problem is that the stock market rising up so much has led to house prices following it up. And that's made it more affordable for, you know, what my dad used to call the average working Joe to save up and afford a house. So, you know, we've got a terrible problem of inequality here, and it is a policy mistake. But fundamentally, neither party has a really sound economic growth strategy. Inflation, which Adam quite rightly says is a huge problem, is really a reaction to the fact that these politicians have no growth strategy. If you want to have a growth strategy, you've got to say, what are the industries that can help us grow most effectively over the next 10 years? And how do we position our country to succeed in those industries without micromanaging the economy? And that's very doable. Well, you bring up a good point. Let's talk about wages, because there's data from a report last month from the Bank of America shows that lower income wage is growing at 4.1 percent. That is now above middle and high level income. So the gap is closing. So Adam, doesn't that undercut this argument that the economy is leaving the workers behind? Yes, certainly. I don't think that it is as dire as all of these stories would lead you to believe. And the framing of the economy being sort of workers against capitalists or capital versus labor is, I think, getting it all backwards. Workers need new machines, new tools, new technology to be more productive, to compete on the world stage. And so you really need both of these things together. The sort of either or framing, I think, is really misleading. And we need more investment, which comes from stock market performance. We need more investment in physical things here in America, new technology, in order for the American people to keep getting those higher wages. And so I think it's an all the above. It's getting out of the way and letting those investments flow to the places in the economy where they're needed most. You mentioned, Jeff, the concentration of wealth at the highest. This is the highest wealth concentration that we've seen since 1989. At the same time, as I just mentioned, those wages are converging. So what does it tell us that Americans are earning more evenly, but they're owning more unequally than at any point in a generation? I think you're trying to read too much into these broad average statistics. You know, over one year, wages may be up 4.3 percent, and it may be half a point more than the average consumer price index. But remember, first of all, the consumer price index is doctored. The government officials who run it have not allowed the price of cell phones and automobiles and other electronics to truly reflect price increases. So that's doctored. I don't believe everything in the CPI, number one. Number two, what voters and people trying to run a family react to is the price of groceries, the price, again, of housing and of health care. And all those things have risen by much more than 3 or 4 or 5 percent over the last five years. I mean, there was a survey out this morning. What was the figure? Was it 40-something percent? No, 66 of the Americans said the cost of groceries is unaffordable. Asked to describe it, they said it's unaffordable. And when you read things like the conviction or the case—I shouldn't say conviction, I think they settled out of court. All the egg producers in America, there are like four of them, they had a conspiracy to maintain prices far above market levels. So we've got these problems, and the government makes steps here and there to do things about it, but there's no fundamental reform. So we have wealth concentration also becoming a major political issue for a very good reason, as well as some of the very low taxes that some of the richest people pay. You mentioned Elon Musk. He's obviously one of them. Jeff, is there an economic case for taxing wealth versus income? There is not an economic case for taxing wealth rather than income. The statistics that you allude to there, that the wealthiest Americans pay lower tax rates than the lowest-income Americans, is simply not true. There was a study that was put out under the Biden administration that showed that the wealthiest 92 Americans paid average tax rates of about 60 percent when you put all their taxes in. And so the United States actually has the most progressive tax system in the developed world. Our rich people pay a larger share of federal taxes than almost anywhere else in the world. And so the solution is not higher taxes. I think, if anything, taxes are the problem. Instead, we should be focusing on getting the government out of the way of markets. We should be lowering taxes on everyone. And the idea that wealth is a problem that needs to be solved is precisely backwards. Wealth is what fuels all of the companies that hire and employ and raise the wages of Americans. Elon Musk and Jeff Bezos' wealth is not gold bars in the back of their closet. It's shares in ongoing productive businesses that, if the government raises taxes on them, you then have to liquidate parts of productive, ongoing concerns that are employing Americans. And that would be detrimental for Americans up and down the income scale, not just those few people. Jeff, we only have about 45 seconds left, but please respond. I think the wealth, the richness of companies like Amazon and Apple have led to billions of dollars of investment in China, which have made Americans unemployed. But in fact, I don't support those wealth taxes like Gavin Newsom's wealth tax, because they will just screw things up. What we need is for people to earn a good living. People want a paycheck, not a welfare check. Taxes are just a way of the politicians distracting us from the real issue. All right. Well, we have to leave our discussion there. Adam Michel, the director of tax policy studies at the Cato Institute, and Jeff Ferry, back on the show, the chief economist emeritus at the Coalition for a Prosperous America. Thank you both for joining us today. Really appreciate it. And that'll do it from myself and the team here in Washington. I'm going to hand it back to Kristen Salumi in New York and then Al Jazeera's global headquarters in Doha. Thanks so much for joining us. Thanks, Alex. We'll be back tomorrow with another edition of This Is America. That's 18.30 GMT or 2.30 p.m. Eastern time here in the United States. See you then.