the original justification for taxing 529-plan earnings was that, if you do the math, the \u201crich\u201d benefit disproportionately and are disproportionately likely to have a 529-plan in the first place. \u00a0But now the AP article is reporting a new rationale even as they abandon the idea:<\/div>\n
\u00a0It was part of Obama\u2019s plan to consolidate and simplify a sometimes confusing array of tax breaks for college students.
. . .
\u201cWe proposed it because we thought it was a sensible approach, part of consolidating six programs to two and expanding and better targeting education tax relief for the middle class,\u201d said the White House official.
. . .
The administration said all the additional tax revenue would have been used to help expand and make permanent a $2,500 tax credit that families can use for education expenses.\u00a0<\/p><\/blockquote>\n
Notice something?<\/p>\n
The administration planned to swap a program that encouraged parents to save<\/b> for college, for one that simply provided cash benefits (in the form of tax credits \u2013 though the article doesn\u2019t say, and I don\u2019t have time to look up, whether this is intended to be refundable) at the time of attendance, and treated these two as if they were of equal benefit, in broad principle, with the latter to be favored because it would provide a flat amount for each family\/student regardless of income level.<\/p>\n
Which pretty much proves my point, even though on Sunday I hadn\u2019t seen this rationale. <\/p>\n
The concept of the 529-plan tax break, like the parallel Roth IRA, is to provide the sort of benefits that encourage Americans to make wise financial decisions, like saving for college or retirement, thus providing a payoff for the tax break far in excess of the money \u201cspent\u201d by the forgone taxes \u2014 either in terms of reduced outlay on financial aid later, or the economic and social benefits of an increase in Americans with a healthy amount of savings at retirement. <\/p>\n
Spending the money gained from taxing 529-plan earnings (which, let\u2019s face it, won\u2019t exist, because 529-plans would disappear) on a different set of benefits is a mindset that simply doesn\u2019t recognize the value in saving, because, after all, the government can provide for you in your time of need anyway.<\/p>\n<\/body><\/html>\n","protected":false},"excerpt":{"rendered":"
So on Sunday, with respect to the Obama administration\u2019s proposal to tax 529 plan earnings (effectively destroying the plans),\u00a0I said, \u201cI don\u2019t see another way to read the administration\u2019s proposal other than an abandonment of the idea that families should save for their children\u2019s college, rather than relying on government giveaways, loans, and loan forgiveness […]<\/p>\n","protected":false},"author":2209,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[61,26],"class_list":["post-82","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-529-plans","tag-taxes"],"yoast_head":"\n
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