The Real Obama Liberal Legacy: Taxing College Savings Plans

John Boehner

The Real Obama Liberal Legacy is a periodic series to highlight the pitfalls and consequences of liberal progressivism. 

Next up—as back to school season gets underway—Taxing College Savings Plans.

The proposal: “[T]he President’s plan will roll back expanded tax cuts for 529 education savings plans that were enacted in 2001 for new contributions, and . . . repeal tax incentives going forward.” President Obama’s State of the Union address fact sheet, January 2015

The reality: For years now, families saving for college have been able to use college savings accounts—called 529s—tax-free to help afford the cost of college. But in his 2015 State of the Union address, President Obama proposed to change this by reinstating a tax on these plans, threatening to make college out of reach for many American families.

Wait—what? Our thoughts exactly. Stronger, modernized 529s means fewer middle-class families struggling to pay the high tuition costs at colleges nationwide. 529s mean families can start saving for their child’s education the day they’re born—and contributions large and small can be withdrawn tax-free to pay for various costs, like textbooks and housing, when it’s time to enroll. Does taxing these tried-and-true plans sound like a good idea?

Well, this is awkward: Members of his own party—and even his own cabinet (!)—agreed that this is a bad idea. Asked about taxing college savings accounts, former Education Secretary Arne Duncan said encouraging these plans “would be fantastic,” and the government should “incentivize and reward that.”

Hindsight is 20/20: Citing it as a “distraction,” the Obama administration eventually dropped its proposal to tax 529s—something that should’ve been obvious from the beginning. Because during a time when student debt is out of control and financial challenges are burying families, taxing a tool that promotes education should be out of the question. The American people clearly agreed. Today, total investment in 529 plans is at record levels, while the number of accounts has risen to 12.5 million.

There’s a better way to do this: Instead of taxing families who are saving for college, House Republicans want to help them by strengthening, expanding, and improving 529 plans. Legislation introduced by Rep. Lynn Jenkins (R-KS) passed the House on a bipartisan basis, and is part of the #BetterWay agenda released this year to reform our tax code. By making 529s more accessible and easier to use, Americans can have more control over their families’ futures—and their kids’ education.

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