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Under Pressure from Both Parties, Obama Drops 529 Provision from Tax Plan

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On Tuesday, the White House announced that it will not go forward with attempting to pass the provision to raise taxes on college savings accounts, which was originally part of President Obama’s “Robin Hood” tax plan.

According to the New York Times, the move was an “abrupt turn for the president,” after he initially made the proposal as part of his pitch for “middle-class economics.”

House Speaker John Boehner released a statement on Tuesday, calling the provision in Obama’s plan “another example of his outdated, top-down approach when our focus ought to be on helping all Americans.”

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The Wall Street Journal reported that in addition to receiving criticism from Republicans over the plan, Obama was also under pressure from members of his own party, including House Minority Leader Nancy Pelosi, who recently “pressed the case for dropping the plan.”

A White House official released a statement on Tuesday night, claiming that even though Obama was dropping the provision from his tax plan, the remaining proposals would generate more than enough money to fund the plan:

Given it has become such a distraction, we’re not going to ask Congress to pass the 529 provision so that they can instead focus on delivering a larger package of education tax relief that has bipartisan support, as well as the president’s broader package of tax relief for child care and working families.”

Obama’s original plan, which was announced days before his State of the Union address, was to increase tax credits for the middle class with $320 billion in revenue obtained by increasing taxes on the wealthy over the next ten years.

In addition to an increase in the capital gains rate, changes in the death tax rate, increased taxes on the assets of major banks and a limit to the amount of money placed in retirement funds, Obama’s initial plan would place taxes on college savings accounts.

According to Americans for Tax Reform, while the current law lets money put in 529 plans, or college savings accounts, grow tax-free, Obama’s proposal would require that earnings “face taxation upon withdrawal, even if the withdrawal is to pay for college.

The New York Times reported that Obama started 529 accounts for his daughters in 2007, “front-loading five years’ worth of contributions” with deposits of $240,000.

During his State of the Union address, Obama claimed that he was offering a “set of concrete, practical proposals to speed up growth, strengthen the middle class, and build new ladders of opportunity into the middle class.”

Following the news that Obama had decided to drop the provision from his plan, Boehner released a statement saying he was glad Obama decided to listen to the American people, due to the fact that the tax “would have hurt middle-class families already struggling to get ahead.”

While many were in favor of the change, former White House economic adviser Jared Bernstein told Politico that the White House might have dropped the provision because it was “blindsided” by the massive criticism the plan received.

If you think it’s a good idea, defend it,” Bernstein said. He condemned the White House for pulling back so quickly, in response to the criticism.

 

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