President Obama’s top economic adviser on Friday defended the administration’s proposal to limit a tax break for college savings against conservative criticism that it amounted to a tax hike on middle-class families.
Obama’s proposal, introduced before Tuesday’s State of the Union Address, would tax withdrawals from the college savings plans created under section 529 of the tax code, and expand other tax incentives for college-goers.
Chairman of the White House Council of Economic Advisers Jason Furman defended the change in an interview with Bloomberg News Friday, saying that the president’s plan as a whole created more tax savings for college than it took away with the section 529 plan.
“Overwhelmingly, this plan provides much more of a tax incentive, much more assistance through the tax code to go to college than anything that we have in our system now,” Furman said, according to Bloomberg’s account.
Furman said that the existing section 529 provision mostly benefits higher-income earners, and is “ineffective in serving its goals of getting people to go to college who wouldn’t otherwise have gone.” Under the current tax code, section 529 creates savings accounts with earnings that are not subject to federal tax if they are used for college expenses.
Since the proposal was first introduced Saturday night, conservatives have decried it as a threat to middle-class college aspirations.
Ryan Ellis, a tax policy analyst at the conservative group Americans for Tax Reform, wrote in Forbes Wednesday that the proposal was an assault on the middle class. “It’s an attack on their values, an attack on their version of the American Dream, and an attack on their own personal aspirations as parents,” he claimed.
Congressional Republicans have seized on that rhetoric, claiming that the proposal runs counter to the “middle-class economics” rhetoric the president used in promoting his plans.
But the administration has noted that the average family that makes use of section 529 plans has significantly higher earners than the average family of the U.S. as whole.
Furman told Bloomberg that the administration’s plan to limit the tax benefits of section 529 would raise $1 billion in tax revenues during the 10-year budget window, while the administration’s college proposals as a whole would yield $50 billion tax cuts.
