The tax-writing committee in the House of Representatives voted Thursday to expand tax incentives for college savings, a response to President Obama’s targeting of the savings plans in his budget last month.
The Ways and Means Committee, led by Rep. Paul Ryan, R-Wisc., approved a bill sponsored by Rep. Lynn Jenkins, R-Kansas, to bolster Section 529 savings accounts. The measure passed on a voice vote.
The so-called 529 plans were due to lose their most appealing feature: tax-free withdrawals. The idea provoked a widespread backlash, and Obama quickly abandoned the proposal.
The accounts allow families to withdraw money tax-free for higher education spending. The bill advanced Thursday adds computers or Internet services to the approved spending, which already includes tuition, books, and other college expenses. The bill also changes the tax treatment of beneficiaries and allows them to place refunds they get from schools back into accounts.
House Speaker John Boehner said Thursday that “the president tried to tax these accounts, but we’re working to expand them, which means more savings and less debt for our students.”
Obama and his advisers faced a backlash over the savings accounts in January after the administration announced it would limit them in the president’s budget as part of a larger plan to increase tax credits for college.
Republicans accused the president of attempting to raise taxes on the middle class. The White House noted that a majority of the benefits provided by the tax preference accrue to high-earning families, but it dropped the plan nevertheless.
Democrats on the Ways and Means Committee tried to attach an amendment to the bill that would make 529 plans unavailable to families making over $3 million a year, but that was voted down by Republicans. Democrats then suggested that the Republican-sponsored bill would increase the deficit.
The bill would cost the Treasury $51 million over 10 years, according to the Joint Committee on Taxation.
“I think you can expect this bipartisan bill on the floor very soon,” Boehner said.
