State of the Union policy proposals come, often in rapid-fire fashion, and go. President Obama’s proposal to tax “529” college savings accounts, announced only last week and withdrawn this week, may have set a record for the quickest skedaddle.
The “529” plans, named for the section of the Internal Revenue Code that addresses their tax treatment, allow people to squirrel away money to pay for a family member’s college tuition. The money gets invested, taxes on any gains are deferred, and the money that accumulates in the account can later be used to pay for a beneficiary’s college, tax-free. That’s why savingforcollege.com says that 529 plans offer “unsurpassed income tax breaks.”
The 529 plans are such a good deal that more than 7 million of them have been created. President and Mrs. Obama have them for their daughters, for example, and put $240,000 into those plans back in 2007. And while the Obama Administration argues that the tax benefits for those plans predominantly favor “the rich,” it all depends on how you define “middle class” in modern America. As the New York Times points out, 10 percent of 529 plans have been established by people with incomes below $50,000, and 70 percent of the total number of 529 accounts are owned by households with annual income below $150,000. Is a two wage-earner family that makes $140,000 really wealthy? My guess is that most families in that category don’t look at things that way.
The President’s 529 tax plan was a trial balloon that quickly was shown to be a lead balloon, opposed not only by the people who set up the 529 accounts, and the entities that hold and manage those accounts, but by Democrats and Republicans alike. House Minority Leader Nancy Pelosi reportedly personally lobbied President Obama to ditch the 529 tax plan on a recent plane flight. And the optics of the proposal aren’t that great, either. For generations, a cornerstone of American policy has been to help citizens get their kids to college — and now we’re going to tax those industrious folks who plan ahead and save for college for their kids and grandchildren, rather than letting them be saddled with crushing student loan debt as they go forward into their adult lives? Of all of the tax breaks available in the endless Internal Revenue Code, this is the one we’re attacking?
You can argue, I suppose, about whether the 529 tax plan was good policy, but there’s no doubt that it was bad politics. I’m guessing that “529’d” might become part of the dictionary of political slang, to be used in the future whenever an ill-conceived proposal gets raised, quickly torpedoed, and then flushed forever down the memory hole.