The White House announced Tuesday — one week after President Obama’s big speech — that it has chickened out on his big proposal to impose a new tax on 529 college savings plans.
The 529 account resembles the Roth IRA. Savers make post-tax contributions and invest them. The gains from those investments are not taxed when they are withdrawn years later to pay for college. Obama wanted to tax those gains, effectively abolishing such savings plans.
But this tax increase proposal — part of a plan to fund universal free community college — threatened to make Obama’s State of the Union rhetoric about “middle class economics” look ridiculous. The tax hike would have fallen heavily on middle-class families that use these instruments as a way to save for college tax-free. Five million families with incomes of less than $100,000 hold 529 accounts, as do millions more non-wealthy Americans in the upper middle class.
Even if it saves him some ridicule in the short run, Obama’s abandonment of this relatively minor middle class tax-hike proposal suggests that liberals lack the spine to pursue their own long-term vision for America.
In his fiscal summit of February 2009 just after taking office, Obama told lawmakers that they must come together to make the tough choices about the budget. “Contrary to the prevailing wisdom in Washington these past few years,” he told legislators, “we cannot simply spend as we please and defer the consequences to the next budget, the next administration or the next generation.”
From Obama’s perspective, the tough choices he is referring to are easily identified as middle-class tax increases. After all, Democrats have resisted, mocked and attacked Republican calls to reform entitlements. They have supported tax hikes on the wealthy to make deficits a bit smaller, but there are not enough wealthy people in America to fill the gap, nor can they be taxed at a high enough rate to pay for all the entitlement and social spending the Democrats want.
Thus, Obama Democrats need large middle class tax hikes to sustain their vision for America’s future. Nothing else will work. And so if Obama is too scared to touch the favorite deductions of the middle class — whether it be the mortgage interest deduction or the 529 plan — then he is too scared to make his own long-term worldview a reality.
Obama had another, earlier opportunity to impose the broad tax hike on the middle class that he needs — in January 2013, right after he won re-election. He could have simply allowed income tax rates revert to Clinton-era levels. He didn’t even need to pass any legislation. He chickened out that time, too.
It is almost enough to make one long for Walter Mondale’s candidacy of 1984, in which that elder statesman admitted that he was going to raise taxes.
There was a time when Democrats still felt obliged to tell Americans the truth about their intentions and accept the electoral consequences. To the extend they have succeeded in the three decades since Mondale, they have done so by shedding such scruples.
