Anyone who has a 529 plan
This is quite an amusing article. According to the NY Times, if you have a 529 plan for your kids, you’re kinda rich and need to pay more in taxes. The the rich meanies rebelled at the suggestion, even the ones who read their newspaper! So poor old Obama had to pull it off the table.
The first rule of modern tax policy is raise taxes only on the rich. The second rule is that your family isn’t rich, even if you make a lot of money.
President Obama’s State of the Union proposal to end the tax benefits for college savings accounts ran afoul of these rules, which is why he abandoned it, under intense pressure from both political parties, within a week.
Tax-free college savings accounts, like the mortgage interest deduction and the state and local tax deduction, principally benefit people who range from affluent to wealthy. In pushing its proposal, the White House pointed to Federal Reserve data showing that 70 percent of balances in the college accounts were held by families making at least $200,000 a year. In theory, tax reform is supposed to be built around cutting back preferences like these, in order to pay for some combination of lower tax rates and tax preferences aimed at people with lower incomes.
But in practice, politicians from both parties have made a point of holding the group you might call the “merely affluent” harmless from tax increases. If you make $150,000 to $225,000, you make about two to three times the national median income for a married couple. The list of occupations that can get you into this income bracket — government official, academic, lobbyist, journalist — can sometimes make it hard for people in political circles to remember that 92 percent of American married couples make less than $200,000 a year.
They keep hammering away at this, and disdainfully mention this article by economist Megan McArdle.
…There’s a reason for that. Americans like to hear that rich people are going to be forced to pay their fair share. They would probably be considerably less excited to hear that Obama wants to tax the earnings on educational savings accounts, or that any assets they inherit from their parents would be subject to a capital gains tax. To be fair, there are generous exemptions. But there are a lot of affluent-but-hardly-wealthy folks in blue states who would be very unhappy to hear that that nice Westchester home Mom and Dad bought for $15,000 in 1952 is going to be subject to a capital gains tax — at the same time they’re suddenly paying income taxes on the capital gains and dividends in little Sally’s college account.
In some ways, this is a measure of how difficult the American fiscal picture is. Estates get what’s known as a “stepped-up basis” on assets — meaning that when you inherit a house from Mom and Dad and later sell it, you’re taxed on the difference between the value at the time you inherited it (your basis) and the value at the time you sell it. Obama proposes to use the price your parents paid as the basis, though the first $200,000 is exempted, and there’s an additional $500,000 exemption for homes.
The people this hits will be a small group, but again, it’s a group that includes a lot of fervent Obama supporters in blue states. Moreover, there’s good reason to step up the basis, because over the decades, records are lost and it can be hard to determine what price Mom and Dad paid, especially for assets that aren’t homes. Taxing the earnings on college savings accounts is even stranger, both because this hits the middle class, and because if you tax the earnings, there’s not all that much point to having the account; essentially, Obama is taxing college savings accounts in order to fund universal community college. This is scraping the bottom of the barrel, and what it tells you is that Obama has already run through most of the practical and politically palatable ways to tax the affluent.
And she makes this brilliant point:
Of course, these are never-never proposals; the new Republican Congress is not going to open its career by taxing America’s college savings. But in a way, that makes it even stranger; since you can’t get it done anyway, why bring it up?
The answer is that this gives him an imaginary revenue source he can attach to his equally imaginary plans to subsidize community college and child care. The real benefit of these proposals is that they’re complicated and hard to explain. Republicans have been understandably reluctant to attack these policies directly, and for good reason.
Heading back to the disappointment at the NY Times:
A lot of people in this category don’t think of themselves as rich, and they benefit from tax provisions like college savings accounts.
So when he first ran for president, President Obama repeatedly promised not to raise taxes on families making less than $250,000 a year. The flat thud his college proposal landed with emphasizes why that promise resonated so.
The savings plans debacle illustrates a problem for both the president and Congress: If you can’t go after tax provisions for the merely affluent, you are exempting almost everyone from tax increases. And if you can’t broaden the tax base, then you are very limited in how much you can finance tax reform.
And by reform, the NY Times means redistribute income from the middle class (they deny that the middle class is using the 529 plan, I call bs) to the poor. Because there just isn’t enough money among the rich to pay for everything that the Left wants to pay for. By the way, the comments at the end of the NY Times article are just priceless. Their readers are furious that Obama would take away their favorite tax break.