In a tax code littered with carve outs, write offs, deductions, and other tomfoolery, damned little of that goes to the middle-class, which I’ll define broadly as anyone who works for a wage and does not receive food stamps, EITC, or other such means tested benefits.
One of the few good things available to the middle class are the 529 plans. These are essentially tax exempt. Though your contributions are made from after tax income, the contribution is not taxable when it is withdrawn for educational use.
What Obama is proposing is that the proceeds of these 529 plans be taxed when they are withdrawn. According to Politico, Obama sees saving for college something only the wealthy do and his raiding of this program is intended to pay for other programs that he likes better, you know, ones that make you dependent upon the federal government:
The administration wants to extend the American Opportunity Tax Credit, the administration’s signature higher-education tax benefit that’s scheduled to expire at the end of 2017, while making it more valuable to low-income students. Obama also wants to fix an issue in which those who join a government program that forgives student loan debt after borrowers make payments for 20 years can be socked with unexpected — and big — tax bills. That’s because the IRS considers forgiven debt to be equivalent to income and taxes it. Under the administration’s plan, that would end. Other parts of the administration’s plan would exempt Pell grants, which go to students from low-income families, from taxation.
The administration proposes to finance the breaks at least in part by taking away education breaks for the well-off. Details are thin, but the administration says it would “limit upside-down education savings incentives” by rolling back Section 529 education tax breaks created by President George W. Bush and repeal incentives for the Coverdell education savings program.
Though we mocked the lunatic Life of Julia, the overarching theme of this administration is to reduce personal autonomy and increase dependency upon government. Obama’s proposal would make self-funding of education much more difficult for working class and professional class parents and with it, the ability to guide your child to a school of your choice rather than relying on “free” community college or some other handout.