President Obama has badly damaged his populist push for tax increases, just as he releases a budget Monday meant to wage a fight with Republicans over the best blueprint for helping the middle class.
By abruptly dropping his bid to tax popular 529 college savings plans just days after proposing the measure, Obama stoked doubts about whether he was serious about pursuing even broader levy increases.
That Obama was so willing to give up on a relatively minor tax provision, progressives complain, is a bad omen for a clash that was more about political symbolism than getting the president’s fiscal blueprint through a Republican-controlled Congress.
“Raising any kind of tax is difficult enough,” lamented a veteran Democratic strategist with close ties to the White House. “But to retreat on 529, something that most people didn’t even know about a few days ago, what kind of message does that send? To me, that says you’re going to back down if you encounter any kind of opposition.”
The White House intended to levy 529 plans to pay for a larger college tax credit, and Obama’s aides defended the move by arguing that mainly higher-earning families rely on such savings.
In the face of intense pushback from House Minority Leader Nancy Pelosi and other major Democrats, Obama relented. And now Republicans are eager to further embarrass the White House on divisions within the Democratic Party on taxes.
In coming weeks, the House will vote on an expansion of the 529 program, taking up legislation co-sponsored by Rep. Ron Kind, D-Wis.
Even more awkward for the White House, Obama’s tax on the 529 plans remains in the written copies of his budget — the document was sent to the printer before he reversed course.
However, Obama still wants to raise taxes by roughly $320 billion over the next decade.
The president would like to increase the capital gains tax rate on couples earning more than $500,000 annually, charge capital gains on assets passed on to heirs and place a new tax on big banks.
In turn, Obama will call for a tripling of the childcare tax credit, an expansion of the Earned Income Tax Credit and more federal funding for higher education.
Following the 529 debacle, however, conservatives argue that Obama has no real standing to demand any kind of tax increase.
“This raises red flags. It’s not credible for the White House to say this package of tax increases is a party position and everybody loves it,” anti-tax crusader Grover Norquist told the Washington Examiner.
“It highlights that they didn’t have Democratic buy-in,” added Norquist, the president of Americans for Tax Reform. “This is the sort of half-ass thing that could have only come about from a small number of Obama loyalists thinking it would sound good.”
And conservative message mavens contend that Obama’s political headache on taxes is just beginning.
“It’s symbolic of a mindset in this White House — they are willing to penalize anybody who has tried to save money and call it a giveaway to the wealthy,” said GOP pollster Whit Ayres of the 529 episode. “They thought they were going to stick it to the wealthy. That’s how they’ll try to spin this. It’s absolutely breathtaking.”
When asked to explain the ditching of the 529 plan, White House spokesman Eric Schultz simply called it a “relatively inexpensive and small piece of business for us.”
