Obama Walks Back Proposed Tax on College Savings Plans

The White House balked on a proposed tax on college savings plans, known as 529s, Tuesday after bipartisan criticism over the proposal.

“Given it has become such a distraction,” a White House official said, “we’re not going to ask Congress to pass the 529 provision so that they can instead focus on delivering a larger package of education tax relief that has bipartisan support.”

529s allow people to withdraw money tax-free; Obama’s proposal would have taxed withdrawals as normal income, part of his plan to simplify the tax code, though it would have also affected families’ student financial aid qualifications. Critics say the tax loophole provides a redundant benefit to affluent people who would save money anyway.

Opponents quickly turned the proposed tax into an attack on the middle class, whom Obama made the focus of his State of the Union speech last week. Yesterday House Speaker John Boehner (R-OH) called for the proposal to be plunked “for the sake of middle-class families.” House Minority Leader Nancy Pelosi also criticized the proposal during a meeting with the president.

The Obama administration plans to keep the American Opportunity Tax Credit, which was to have been partially offset by closing the tax loophole on 529s.

[h/t New York Times]

[Image via American Spirit / Shutterstock.com]

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