After July 4, Trump Accounts will start accepting contributions. These new investment accounts are available to American children, and kids born between 2025 and 2028 are eligible for a $1,000 government-funded seed investment. 

The basic idea of Trump Accounts is a good one: help more Americans start saving early in life and allow contributions to a child’s account from parents, relatives, employers, and charities. But the design falls short. My new Cato Policy Analysis explains how Trump Accounts work, why many claims about them are overstated, and how Congress could turn them into a simpler, more useful savings vehicle. 

The biggest surprise is that Trump Accounts are often not tax advantaged for normal family contributions.

Parents, relatives, and friends can contribute up to $5,000 per child each year, but these contributions are not deductible. The money must be invested in low-cost US index funds and is locked up until the child turns 18. At that point, the account converts to a traditional IRA. Withdrawals are generally taxed at ordinary income tax rates, and withdrawals before retirement that do not qualify for a short list of exceptions face an additional 10 percent penalty.

That structure creates a problem. Family contributions go in after tax, just like money put into a regular brokerage account. But unlike a brokerage account, the investment gains are later taxed as ordinary income instead of at the lower capital gains rate. For many families, that means putting their own money into a Trump Account could leave their child worse off than using a normal taxable brokerage account, let alone a 529 plan. 

A simplified example from the report shows this gap. Over 30 years, a $5,000 pre-tax investment could grow to more than $40,000. In a Trump Account funded with after-tax family contributions, the final, withdrawn value is $24,496. That is $2,451 less than the same investment in a regular taxable brokerage account. Table 2 of the report shows the full comparison across account types.

Employer contributions and sophisticated tax-planning strategies can improve the result. But that is exactly the problem. A savings account meant to help more families build wealth should not require a tax adviser. 

The other major problem is the $1,000 government subsidy. Direct government transfers require rules about eligibility, approved uses, penalties, and administration. They also add billions of dollars in new fiscal costs and create political incentives for Congress to expand the subsidy in future political cycles.

Congress should keep the early-life account structure and the ability to receive contributions from multiple sources. But Congress should eliminate the $1,000 subsidy, simplify the rules, and make the accounts genuinely tax neutral.

One option is to allow all contributions to be deductible, let the funds grow tax-deferred, and tax withdrawals as ordinary income. At age 18, the account should convert not into a traditional IRA but into a Universal Savings Account. That would allow unrestricted withdrawals without extra penalties or government-approved uses.

Canada and the United Kingdom already have similar flexible savings accounts. They are simple, broadly used, and especially attractive to younger and lower-income savers.

That is the lesson Congress should take from Trump Accounts. The country does not need another complicated, restricted savings account layered on top of the existing maze of qualified savings accounts. It needs fewer, simpler, more flexible accounts that let Americans save for their own priorities.

Read the full report here.

Social Security’s long-term shortfall is likely significantly worse than projected. In 2025, the Social Security Trustees estimated that the program faces a 75-year funding shortfall equal to $27 trillion in present-value terms. But those projections rely on unusually optimistic assumptions about future US fertility rates. The Trustees are likely understating Social Security’s insolvency problem by assuming Americans will start having far more children than current trends suggest.

If fertility instead follows projections from the Congressional Budget Office (CBO) or the US Census Bureau, Social Security’s 75-year deficit rises to at least $30 trillion. In other words, the Trustees and the Social Security Administration (SSA) may be understating the size of Social Security’s long-term financing gap by at least $3 trillion in present value terms.

Examining Social Security’s Fertility Rate Assumptions

Figure 1 compares the Trustees’ total fertility rate projections with those of other peer organizations. The Trustees assume that the current fertility rate of about 1.6 children per woman will increase to 1.9 by the early 2040s. But the Trustees are, by far, the most optimistic about future fertility. By 2100, the SSA projects a total fertility rate roughly 30 percent higher than both the Census Bureau and the CBO, who project that fertility is likely to continue to decline. 

The SSA gives three reasons for its optimistic fertility forecasts. 

First, the SSA cites American exceptionalism, arguing that the United States has a distinctive “cultural and economic climate” that will prevent the kind of prolonged fertility decline experienced in many other OECD countries.

Andrew Biggs at the American Enterprise Institute interprets this claim as referring to how religious Americans are when compared to their OECD counterparts. But Biggs also points out that young Americans are becoming less religious. 

One way to test whether the US exhibits uniquely high fertility patterns relative to its OECD peers is to compare actual US fertility rates against predicted OECD patterns. As Figure 2 shows, the United States converged to OECD fertility patterns after the 2007 Recession. 

This convergence has also been documented in the economics literature. In a 2022 report, economists Melissa Kearney and Phillip B. Levine argue that “the US fertility rate is belatedly converging toward other high-income countries,” while Erasmo Papagni also documents the strong statistical convergence of US fertility rates with other high-income, low-fertility countries. The SSA’s view that the United States will remain demographically distinct from its OECD peers no longer reflects current fertility trends.

Second, the SSA cites survey data that the number of children that Americans state they wish to have remains above 2.0. The Trustees take this to be evidence that fertility will likely increase toward that level. 

The SSA’s claim, however, goes against decades of demographic research that finds an increasing divergence between intended fertility and actual fertility. As Figure 3 shows, intended fertility rates do not closely follow actual fertility rates. 

To more rigorously test whether one can project actual fertility rates from intended fertility rates, we also conduct a Granger causality test for up to three lags (code here). These tests indicate that neither series (at least in aggregate) is useful for forecasting the other. As such, the fact that Americans say they want to have more than two children does not necessarily mean that Americans will have more than two children. 

This is not uncommon. Even in low-fertility Europe, women typically state that they desire a significantly larger family than they end up having. The Trustees should not rely on unrealized fertility intentions to project actual fertility. 

Finally, the Trustees suggest that falling fertility rates may simply reflect delayed births rather than fewer births overall, assuming that postponed births will eventually show up at older ages, thus stabilizing or increasing future fertility. 

The Trustees’ optimism is not supported by historical trends. Table 1 shows the change in birth rates by age group between 2007 and 2023. Older cohorts are indeed having slightly more children, and younger women are having fewer. But the gains among older cohorts are not nearly large enough to compensate for falling fertility among younger cohorts. 

We estimate that, from 2007 to 2023, for every additional birth gained at older ages, twelve births were lost at younger ages. So, for delayed births to stabilize or increase fertility, older cohorts should have at least twelve times more children. This may be technically possible, but historical evidence gives us little reason to consider it likely. It is also unrealistic if we consider that many other countries have experienced a delay in fertility without any corresponding increase in fertility rates.  As such, the Trustees cannot reasonably claim that delayed fertility will stabilize or increase total fertility rates in the future. 

Consequences of the Trustees’ Optimistic Projection

Figure 4 plots the SSA’s projections of total population against peer forecasters. The Trustees project a far larger population compared to the CBO or the Census Bureau, by as much as 25 percent above the next largest estimate.

Figure 5 plots the SSA’s projections of the dependency ratio against peer forecasters. Again, the SSA produces low forecasts for the dependency ratio, with its 2100 forecasts a fifth lower than the next-nearest projection. 

Optimistic population assumptions translate into optimistic financial projections. In a pay-as-you-go system like Social Security, higher assumed fertility means more future workers paying taxes to finance benefits and thus a smaller projected shortfall. To estimate the fiscal impact of the Trustees’ fertility assumptions, we rerun the Trustees’ intermediate long-range projections using CBO and Census fertility projections instead (code here). As Figure 6 shows, adopting more realistic total fertility rate assumptions can lead to much more pessimistic projections of Social Security’s 75-year balance. 

The Trustees project that Social Security’s 75-year shortfall is $27 trillion in present value terms. However, with more realistic total fertility rate assumptions, Social Security’s 75-year shortfall increases to $30 trillion (with Census projections) or $31 trillion (with CBO projections) in present value terms. 

Note that the Census’s and CBO’s projections of future fertility may also be optimistic. Both the Census’s and CBO’s estimates assume that long-term fertility rates will plateau at around 1.53 to 1.56. Yet fertility has been declining in the United States for the last two decades. And there seems to be little reason to believe that this decline will stop anytime soon. 

Congress Should Demand Answers

The Trustees’ fertility assumptions are not a technical footnote. Because Social Security is financed on a pay-as-you-go basis, fertility projections directly shape estimates of the program’s long-run solvency. If the Trustees’ fertility assumptions are too optimistic, then Social Security’s financing gap is significantly larger than official projections suggest. 

As Congress debates Social Security reform, it should be wary of relying on demographic assumptions that are substantially more optimistic than those used by other government forecasters. Policymakers risk basing reform decisions on projections that overestimate the future size of the workforce and, in turn, the program’s future revenue base. At a minimum, lawmakers should explore why the Trustees’ fertility projections appear to be such outliers, and the Social Security Advisory Board should reconvene the Technical Panel on Assumptions and Methods to better assess the fertility rates likely to occur in the US in the future.

The authors thank Andrew Biggs for reviewing and editing this piece. 

Gas prices have surged due to the war in Iran. In response, President Donald Trump and Senator Josh Hawley (R‑MO) have proposed suspending the federal gas tax for up to 180 days.

The proposal has bipartisan appeal. But it would be expensive, ineffective, and fiscally irresponsible. A three-month gas tax holiday would either accelerate the Highway Trust Fund’s insolvency by roughly nine months or require at least an $11 billion general-fund bailout. Meanwhile, the average driver would save only about $3 per fill-up.

The Gas Tax Holiday Increases Federal Deficit by At Least $11 Billion 

The Federal Highway Trust Fund faces a significant funding shortfall. Figure 1 shows the ending balance of the trust fund from January 2008 to March 2026. The three spikes in the account balance reflect Congress’s three trust fund bailouts in 2010, 2016, and 2021. Notably, these bailouts were not accompanied by corresponding increases in gas taxes or any other structural changes to federal highway revenues or outlays. Congress just chose to spend more.

The trust fund’s shortfall is structural and projected to continue. The Congressional Budget Office (CBO) projects that the Federal Highway Trust Fund will run out of reserves in 2028; the trust fund’s unfunded obligations are approximately $335 billion, from 2026 to 2035. Using historical revenue volatility to simulate future trust fund balance, I find that the Federal Highway Trust Fund will run out of money in March 2028, with insolvency dates ranging from December 2027 to June 2028. 

Figure 2 also shows how a 90-day gas tax holiday from June through August would move the Highway Trust Fund’s insolvency date to June 2027, roughly nine months earlier than under current law.

The Hawley proposal technically would not have any effect on the Trust Fund itself. But, since it calls for a general fund bailout, the Hawley bill would have an effect on the federal deficit. Table 1 presents fiscal cost projections for variations of the Hawley bill. Following the Joint Committee on Taxation’s standard methodology, each projection includes a 25 percent offset to account for the revenue gains from increased economic activity that accompany an excise tax cut.

Assuming the holiday starts in June and goes for three months, the Hawley proposal would increase deficits by $11 to $14.6 billion. However, the timing of the proposal matters. Starting the three-month gas tax holiday in July would increase the deficit by $14.9 to $19.8 billion. This is because starting this policy in July would include September, which is historically the month with the highest gas tax revenues (partly due to a technicality with IRS filing rules, which require bunching October’s excise tax revenues into September’s returns due to fiscal year mismatches.) And if the gas tax holiday starts in June and goes on for a full six months (instead of 90 days), the federal deficit would increase by $24.5 to $32.6 billion. 

The federal gas tax holiday will deliver very little relief to drivers

Figure 3 maps two estimates of how much individuals could expect to save. The first estimate assumes that businesses pass through the entire cost of savings to consumers, which would reduce the price of gasoline for the average individual by 4.07 percent (using AAA data from May 13, 2026) per gallon (code here).

The savings vary substantially across counties. Drivers in Scott County, Indiana, can expect gas prices to fall at least 5 percent. Drivers in Humboldt County, California, on the other hand, can expect gas prices to fall by only 2.07 percent. Assuming full pass-through, a driver can expect to save around $3.68 per full refill on a 20-gallon SUV. 

Evidence suggests that gas tax holidays are not fully passed through to consumers in the short run, especially because the federal gas tax is levied on distributors and importers rather than directly on drivers. A 2024 paper by economist Tsvetan Tsvetanov estimated that only 79 percent of gas tax holiday savings reach consumers, with pass-through rates varying across states due to differences in mandates and inventories. Applying a simplified version of Tsvetanov’s model at the county level suggests that the average county would save just $2.98 per refill on a 20-gallon SUV (estimation method here).

Congress Should Abolish the Federal Gas Tax

The Hawley proposal would increase the federal deficit while delivering only marginal savings to drivers. But the proposal also highlights a deeper problem: Congress increasingly treats the Highway Trust Fund as disconnected from the revenues meant to support it. This is why Congress has repeatedly relied on ad hoc transfers from general revenues to keep highway spending afloat.

A lasting fix would require either higher gas taxes or lower highway spending. The best solution for Congress would be to simply return infrastructure funding to local governments. As my colleagues Adam Michel and Chris Edwards argued in 2023 (and recently again last week), infrastructure spending would be more efficient if handled by state and local governments, who own 98 percent of the nation’s roads. When the federal gas tax comes up for reauthorization in 2028, Congress should simply let it expire.

President Trump’s proposal to treat employer-paid fertility treatments as a “limited excepted benefit” is good, to the extent it would exempt those arrangements from various federal regulations. Under the proposal, large employers could, for example, offer fertility-treatment coverage with higher cost-sharing and lower annual and lifetime coverage limits than federal law otherwise allows. Employers would therefore have more flexibility to offer the treatments workers prefer, often at a lower premium.

At the same time, the proposal doesn’t exactly give workers more control over their lives or health care. Congress creates federal income and payroll taxes, then excludes income in the form of employer-sponsored health insurance from both. The result is that the government effectively penalizes workers for every dollar of income they don’t (1) let their employer control and (2) spend on health insurance. To the extent the proposed rule would deregulate employer-purchased fertility-treatment coverage, it would allow more such arrangements to qualify for that tax exclusion. For every $1 of tax savings workers enjoy, however, they must sacrifice control of $3 of their earnings to an employer. 

So while this is a deregulatory proposal, and it would result in tax savings for some workers, it’s not much of a win for liberty, consumer sovereignty, or free markets.

Not unrelated to that disappointing conclusion is this gem from the proposed rule:

“… the expansion of pre-tax benefits decreases overall tax receipts, constituting a transfer from the government to individuals and employers.”

That assertion holds only if all income belongs to the government, even income it never collects. If the worker never gives that $1 to the government in the first place, however, it means that a transfer is not taking place between the two. (Yes, the tax code implicitly subsidizes ESI. But the subsidy does not necessarily equal the $1 tax savings; it is an indeterminate portion of the aforementioned $3. Even if implicit subsidy exactly equals the $1 of tax savings, that $1 does not “transfer from the government to individuals and employers.”) 

The rhetoric of “tax expenditures” claims another logical casualty.

President Donald Trump told CBS News recently that he wants to “take off the gas tax for a period of time” to provide relief from high gas prices. Senator Josh Hawley says he’ll introduce legislation to suspend the gas tax. A temporary gas tax holiday is a gimmick, not a reform. But Congress should permanently repeal the federal gas tax.

Fix The Cause, Not The Symptom 

First, if the administration wants to bring down gas prices, it should end its unconstitutional, unauthorized, and unnecessary war in Iran. That’s what’s driving the price spike. According to AAA, the national average for regular gasoline was $4.52 per gallon on May 11, 2026. That’s up from just under $3 before the conflict, an increase of more than $1.50 per gallon.

Even if we generously assume that suspending the 18.4‑cent federal gas tax is immediately and entirely passed through to consumers, it would offset only about 12 percent of the war-driven price increase. Consumers would be much better off by simply ending the war (as taxpayers funding the war, they’d also be better off). 

But Full Repeal Would Provide Relief and Reform 

Rather than a temporary holiday, Congress should use this moment to eliminate the federal gas tax entirely and devolve highway funding to the states.

As Chris Edwards and I argued in 2023:

Federal gas tax revenues go into the Highway Trust Fund and then are dished out to the states to use on highway and transit projects. However, since 98 percent of the nation’s streets and highways are owned by state and local governments, it would be simpler and more efficient if those governments were responsible for the funding. Having the federal government raise the funds and then return the funds to the states with regulations attached is unnecessarily bureaucratic. States have the best information to determine their local infrastructure needs.

States have already shown they can take the lead. Average state gas tax rates rose 44 percent between 2000 and 2021. States know what their infrastructure needs are, and they have the fiscal tools—gas taxes, sales taxes, user charges, debt, and privatization—to meet them without a federal middleman.

Congress will have to pass a highway bill reauthorization before September 30, 2026. It should use that opportunity to permanently repeal the gas tax. A federal gas tax repeal would permanently lower prices and be a genuine step toward decentralizing government power. A temporary holiday is just a political gesture. 

Federal intervention into America’s state-led disaster management system has produced a long list of ills, including slow response times, inadequate mitigation, ballooning costs, and wasteful spending. The administration and Congress are separately considering reforms to the Federal Emergency Management Agency (FEMA), which administers federal disaster assistance. One idea being floated, block grants with parametric triggers, would ameliorate a few of FEMA’s many issues, but policymakers should be wary of any reform effort that falls short of meaningfully limiting federal spending and involvement in disaster assistance.

FEMA’s Cost-Sharing Structure Encourages Waste

FEMA provides disaster assistance through two primary channels. Public Assistance (PA) programs provide grants to states and localities for emergency response and recovery work. Individual Assistance (IA) programs provide direct support to individuals who sustain losses due to disasters. The resulting costs are supposed to be shared between the federal government and the states on a 75/25 federal-to-state basis. However, presidents routinely raise the federal share—sometimes to 100 percent of costs—leaving federal taxpayers holding the bag.

Over the last decade, federal disaster spending has grown from $19 billion in 2016 to $33 billion in 2025, adjusted for inflation (2026 dollars). When subnational governments and the private sector expect the federal government to bear the bulk of disaster costs, their incentives to invest in mitigation, avoid building in risky locations, and insure against disaster risks weaken.

Requiring states, localities, and private actors to shoulder a greater share of the financial burden of disasters would reduce federal costs and better align incentives with actual risk, resulting in a more just, effective disaster system.

Parametric Block Grants Address Some of the Core Problems with FEMA

Any serious effort to control disaster spending must address FEMA’s PA programs. PA is the primary cost driver of FEMA’s Disaster Relief Fund, and where the agency’s failures are most visible. Nearly half of FEMA’s PA projects aren’t even obligated—a legally binding commitment to spend—within a year of the initial aid request. Historically, around 20 percent of FEMA’s Disaster Relief Fund spending is consumed by administrative overhead. Overly burdensome documentation requirements and state officials’ confusion over federal red tape have hobbled federal disaster assistance programs since before FEMA existed.

The administration is considering overhauling and simplifying this PA process by adopting block grants with parametric triggers. Under this model, the federal government pays states and localities a fixed amount when predefined thresholds are met, such as wind speeds exceeding 100 mph. The base 75/25 federal-to-state cost share would also be revised downward to 50/50, better reflecting the American tradition of disaster response as a state, local, and private sector responsibility.

The parametric approach (also known as index insurance) has several advantages over traditional insurance:

• Less administrative waste, delay, and uncertainty. Parametric insurance avoids the time-consuming adjustment process associated with traditional indemnity insurance by relying on predefined objective triggers, thereby reducing uncertainty and speeding aid delivery. Because FEMA would not need to evaluate individual claims as closely, it could dramatically reduce administrative overhead, resulting in cost savings and a more efficient use of taxpayer resources.
• Stronger mitigation incentives. Traditional disaster aid pays based on estimated losses, which weakens incentives to invest in resilience. Consider Municipality A, which spends money hardening its infrastructure. It incurs up-front mitigation costs, suffers smaller losses when disaster strikes, and therefore receives less federal aid. Municipality B does not invest, faces no upfront costs, suffers larger losses, and receives more aid. Under the current system of subsidies, Municipality B’s risk-taking may be financially optimal even though it is socially harmful. Parametric triggers can help neutralize this risk-taking behavior. Municipality A and B both receive the same payout, but A reaps the financial reward because mitigation reduces actual losses while leaving the trigger unchanged.
• Less political bias and corruption. Disaster aid is a perennial example of political favoritism. During election years, presidential approval rates of disaster declarations and generous cost-sharing arrangements spike. It also cuts in the other direction. The current administration has rejected disaster aid requests from Democratic states at a higher rate than those from Republican states. A parametric approach, which relies on objective triggers, leaves much less room for partisan discretion and corruption.

Of course, there are limitations to this approach. The most obvious is basis risk, which is the gap between what the trigger pays and what a state, locality, or private actor loses. A disaster survivor might get particularly unlucky during a storm and face financial losses despite sub-trigger conditions. This basis risk problem can be mitigated by allowing insurance markets to price risk, including by reforming the National Flood Insurance Program and state regulatory regimes that suppress accurate pricing.

Similarly, parametric triggers are best suited for fire, wind, water, and seismic events, which constitute the vast majority of what FEMA typically handles. More unusual catastrophes, like a solar flare or asteroid, would likely fall outside this parametric model. The private sector can fill this gap.

Another limitation is that cost savings depend entirely on how the triggers are calibrated. One can imagine a parametric approach that results in equal or greater federal disaster spending than is currently projected, because triggers can be set in overly generous or politically convenient ways. Such is the peril of relying on government bureaucrats to replicate a market product. For parametric triggers to succeed, they must be set in an actuarially sound manner and statutorily protected from manipulation.

Designing a Better Disaster System

Optimally, the federal government should do away with FEMA as it exists today and reimagine the entire federal disaster process. The current system is a tangled mess of overlapping agencies and duplicative programs. The federal role in disaster policy, if there is any, should be constrained to genuine catastrophic national disasters that exceed the capacity of states and the private sector.

Short of agency elimination, FEMA’s core mission should be limited to managing large-scale disasters that cross state lines and overwhelm state and private sector resources. The administration and Congress can accomplish this by raising the bar for disaster declarations, adopting a 50/50 state-to-federal cost share in the near term, and gradually reducing the federal cost share to zero as states and private actors build capacity.

States, localities, and the private sector can take a more proactive role in managing disaster risks by assuming a majority share of disaster costs, fully financing rainy-day funds, and investing in coordination, mitigation, and resilience.

On the continuum of policy reform, block grants with parametric triggers would be a step in the right direction. Designed correctly, they could shrink the administrative state and better align state and private sector incentives to mitigate disaster risks. But designed poorly, especially if layered on top of existing federal programs, they will simply become another instance of technocratic reform gone wrong.

The current national debt is almost $39 trillion—and rising. 

The 2025 One, Big, Beautiful Bill Act has only made matters worse. New research indicates that

federal deficits and the debt-to-GDP ratio will rise substantially and inexorably over the next several decades under any plausible set of economic assumptions, with no natural turning point in sight.

Assuming the 

OBBBA’s temporary provisions expire as scheduled … maintaining the US federal debt-to-GDP ratio at 98 percent by 2054 would require permanent spending cuts or tax increases totaling $827 billion, beginning immediately.

In the absence of spending cuts or tax increases, the next decade will see

deficits … increase by more than $4.2 trillion due to the OBBBA, a figure that rises to $5.5 trillion if its temporary spending and tax provisions are made permanent. … [Also,] federal debt will reach 183 percent of GDP by 2054, or 199 percent if its temporary provisions are made permanent.

Not to worry—the current administration has a plan to fix it.

Cross-posted from Substack.