Soooo much about the middle class and getting people into college!
Then why did he just ask for them to be screwed?
Hoping to dominate the narrative on a holiday weekend and on the eve of the annual â€œState of the Unionâ€ speech, the Obama White House late Saturday night leaked some of the new tax ideas in their upcoming budget.
Thankfully, those of us with several kids and no life were home at the time, so I penned Americans for Tax Reformâ€™s analysis of the major tax hikes in the leak before the stroke of midnight. If the intention was to have an unchallenged narrative, mission not accomplished.
One tax hike in particular was very odd, since itâ€™s aimed almost exclusively at middle class families with kidsâ€“the exact demographic the goodies in the tax plan is targeting.
The levy in question would increase taxes on college savings accounts known as â€œ529 plansâ€ (after their section in the Internal Revenue Code). By definition, these accounts are really only used by middle class families. Poorer households donâ€™t have the extra income to save (and even if they have a little, there are much higher priorities like retirement or saving for a home). Very wealthy families might use 529 plans, but itâ€™s far more likely that they have complex trust arrangements set up for their children.
According to the Investment Company Institute (the trade association for the mutual fund industry), there was $245 billion accumulated in 529 plans in 2014. With just south of 12 million accounts open, that means thereâ€™s an average balance of about $21,000 in these plans. This is not a mechanism for rich Democrats like the Kennedys or the Gates to shelter wealth.
529 plans tend to be opened up by aspirational parents who are on the â€œmass affluentâ€ side of the middle class earnings spectrum. They are an odd target for a tax increase.
But there it is buried on page 9 of the leaked document: â€œThe Presidentâ€™s plan will roll back expanded tax cuts for 529 education savings plans that were enacted in 2001 for new contributionsâ€¦â€ Note that this is right before they also announce the repeal of Coverdell Education Savings Accounts (Coverdell ESAs), another similar move against the same middle class savings targets.
Short answer, he doesn’t care. Otherwise he wouldn’t have hired policy people who would have asked for this increase.