President Obama will not include in his budget a controversial measure to tax popular 529 college savings plans, reversing the plan announced just ahead of his State of the Union Address.
The White House dropped the plan after congressional Republicans and conservatives criticized it as a tax hike on the middle class, the New York Times first reported Tuesday afternoon.
An unnamed administration official said the provision had become a “distraction” amid the uproar and that it would not be included in the budget.
House Speaker John Boehner welcomed the news that the White House would not pursue the change, responding Tuesday afternoon that “I’m glad President Obama has decided to listen to the American people and withdraw his tax hike on college savings. This tax would have hurt middle-class families already struggling to get ahead.”
The White House originally put forward the idea to limit tax-free savings in section 529 college savings accounts as one of several ways to raise revenue to pay for a larger college tax credit, one of the centerpieces of Obama’s State of the Union agenda. The White House did not specify how the revenues would be made up in the forthcoming budget other than to say the other tax changes would close the difference.
Republicans had taken political aim at the president’s plan to tax 529s earlier in the day.
“For the sake of middle-class families, the president ought to withdraw this tax increase from his budget when he submits it soon,” Boehner said Tuesday morning.
Reps. Lynn Jenkins, R-Kansas, and Ron Kind, D-Wis., introduced a bill to expand 529 plans Monday in response to the president’s proposal.
Paul Ryan, the Republican chairman of the House committee with jurisdiction over taxes, said in a statement approving of the bipartisan-authored bill that “we should strengthen these tools, not tax them away.”
The 529 savings plans are intended to help families that are not wealthy save for tuition and other college expenses, but they are generally used by higher-earning families, according to the White House. Last week, Obama economic adviser Jason Furman defended the president’s education proposal on the grounds that it would greatly expand tax credits as a whole, while the 529 provision would only affect a smaller amount of tax breaks for wealthier families.
