Dropping Out of (Taxing) College (Savings)
Obama's tax-the-middle-class plan quickly became a "distraction."
In less time than it takes to fill out a college application, Barack Obama dropped his plan to tax 529 college savings accounts in order to offer two “free” (ahem) years of community college. Just seven days after floating the idea in the State of the Union address, the White House deduced that it had become such a “distraction” as to warrant abandonment.
Given this administration’s penchant for coming up with, and then bitterly clinging to, economically disastrous ideas (ObamaCare, anyone?), political resistance was quick and universal enough that even Obama couldn’t ignore reality.
You see, 529s are education savings plans that help families set aside money for college. While contributions are not tax-deductible on federal tax returns, distributions from the funds to pay for college are tax-free, making 529 plans highly attractive for families wanting to save for their children’s education. The problem – well, one among many – is that the president seemed to assume those who take advantage of these accounts are “rich,” defined in his parallel universe as those who make $250,000 per year. So taxing these accounts would be the obvious choice in Obama’s class-warfare utopia. Shared responsibility and all.
He grossly underestimated the backlash given how many middle-class people actually have college savings. As of last year, there were more than 12 million accounts, and the average balance was $19,774 – far less than the $240,000 the Obamas put into college savings for their private-school-educated daughters in one year alone.
Furthermore, according to the College Savings Foundation, some 70% of 529 accounts are held by households earning less than $150,000 per year – hardly “rich.” Almost 10% are held by households making less than $50,000 per year, and nearly 95% of 529 plans are owned by households making less than $250,000 annually. The president can’t pass this one off as trying to tax the One Percent.
Still, demonstrating his ever-present disconnect from reality, he actually pitched his proposal as part of his “middle-class economics” plan. He defines this campaign theme as “the idea that this country does best when everyone gets their fair shot, everyone does their fair share, and everyone plays by the same set of rules.”
In reality, Obamanomics means government calls the shots, fair share is forcibly relinquishing what you earn fair and square to those who do squat, and the rules are whatever the latest executive order says they are. It would be better known as middle-crush economics.
Far from helping the middle class, Obama’s plan took direct aim at average Americans, as the truly “rich” often pay out of pocket for college and the poor are eligible for financial aid, something middle-class families are often deemed too well-off to receive.
The idea that anyone would propose such a middle-class-crushing tax seems ludicrous, but it’s par for the course when you’re trying to fund exponentially bigger government and running out of revenue sources.
The president must have realized things were bad when two of his top cheerleaders, House Minority Leader Nancy Pelosi (D-CA) and Senator Chuck Schumer (D-NY), pleaded with him to drop the idea. They realized that nothing says “don’t re-elect me” quite like “I want to scalp your college savings.”
While some may call the plan a political blunder, at the end of the day it was simply a case of Obama exposing his true economic philosophy. As Robert Tracinski notes, “The truly committed leftist looks upon our private savings as a vast reserve of capital unfairly withheld from its proper function of servicing the needs of the state.”
So don’t think the president’s money grab is over. Instead, be on the lookout for what he’ll try to commandeer next.