Now He’s After Middle-Class Savers Mr. Obama prepares to wipe out popular vehicles for funding education. Jan. 21, 2015 7:37 p.m. ET President Obama is pitching his new tax plan as a way to help the middle class at the expense of the rich. But middle-class savers are bound to notice if he achieves two of the White House’s stated goals—to “roll back” tax benefits of 529 college savings plans and “repeal tax incentives going forward” for Coverdell Education Savings Accounts. Both plans allow parents, grandparents or anyone looking to help fund a kid’s education to contribute after-tax dollars into accounts that grow tax-free. There is also no tax when the money is withdrawn, provided it is used for qualified educational expenses such as tuition, fees, books, room and board. Mr. Obama wants to allow the IRS to tax as income any withdrawals from future 529 contributions. This would make them less attractive. The White House goal seems to be to discourage private thrift, and encourage greater use of government benefits, when paying for college. If the plans are closed to new investments and savers, those who stand to lose aren’t the 1%. As of June 30, 2014 there were 11.8 million 529 accounts holding $244.5 billion in assets, according to the College Savings Plans Network, a a group of state officials who administer the plans. The average account balance was $20,671. That sounds like “the middle class.” The College Board says the average cost of tuition, fees, room and board at a private four-year nonprofit college this year is more than $42,000. So we’re supposed to believe the President is sticking it to fat cats when he targets savings plans that might cover one semester at a private college, or a full year for in-state students at public universities. This now makes you a Rockefeller on Planet Obama. The Investment Company Institute, trade group for the mutual-fund industry, says that in 2013 households saving for college through 529 plans, Coverdell ESAs, or mutual funds held outside these accounts tended to be headed by people younger than 45. And 49% of these heads of household had fewer than four years of college. A majority of these households, 53%, earned less than $100,000. Liberals are particularly annoyed that, depending on the state, 529s can allow people to save $300,000 or more for education. But maybe parents and relatives wouldn’t have to save so much if federal subsidies weren’t driving the cost of college to such heights. Again this year higher education costs are increasing faster than inflation, as they have for decades. We’d favor a true tax reform with lower rates that replaced all tax subsidies, including those for education. But absent such a reform, Mr. Obama’s plan looks like an attempt to punish private savings in favor of politically controlled subsidies and grants. As he limits Coverdell and 529 plans, Mr. Obama is touting a tax credit of up to $2,500 per year for five years, which should provide most of one year at a state university. He’s also continuing to pitch low interest rates and easy forgiveness for taxpayer-subsidized student loans. And he wants to cut the federal tax on those who have loans forgiven. So there’s an added tax incentive to avoid repayment to complement his tax hike on the suckers who try to pay for college themselves. One more time the Administration is using the political cover of “middle class” to disguise a transfer of power from the middle class to government.
Posted on: Fri, 23 Jan 2015 04:03:37 +0000
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