529's

[theFallGuy]

From our very own Glenn Harlan Reynolds, a University of Tennessee law professor.

Middle-class savings like blood in the water: Column

 

[lawgator1]

I must admit, at first blush when I read this I was opposed to Obama's proposal on it. But if you look behind the theory and get into the hard numbers, it is true that the program has disproportionately helped the wealthy avoid taxes the most.

Why Obama Wants to Tax College Savings - TIME

This point particularly caught my eye:

"And, in part because high earners typically owe higher taxes, the wealthy reaped large tax breaks from using 529s. In 2012, the GAO found that Americans who made less than $100,000 withdrew a median $7,491 from their 529s, saving just $561 on their taxes. But Americans who earned more than $150,000 withdrew a median $18,039, saving $3,132 in taxes."

I hope there is a compromise here and that the tax break can be maintained on a progressive basis, i.e. the lower your income, the greater the amount of tax break you can retain over time.

 

[utvolpj]

Taking from those who planned ahead to give free schooling to others. What could go wrong?

When will 401's be raided to fund retirements for others? They're seeing how much we will give before crying foul

 

[lawgator1]

Taking from those who planned ahead to give free schooling to others. What could go wrong?

When will 401's be raised to fund retirements for others? They're seeing how much we will give before crying foul

I think you are oversimplifying it pretty markedly, here.

 

[VolsNSkinsFan]

LG 50% of 529 plans are owned by people who make under $50k. It's seriously a horrible idea

 

[theFallGuy]

Oh joy, here comes TIME magazine the left-wing rag ready to do mop up duty on Obama's idiotic proposal to make sure all us stupid Americans understand why having tax incentives taken away is good for us. Can't wait to be enlightened.

"If you’ve already got money in a 529, don’t worry. The president’s plan wouldn’t be retroactive. It would repeal the tax break on earnings only for future contributions." Gee thanks for clearing that up TIME. So I only need to worry about all the money I plan to save going forward. Wow, I'm so relieved.

 

[Biopsyman]

I must admit, at first blush when I read this I was opposed to Obama's proposal on it. But if you look behind the theory and get into the hard numbers, it is true that the program has disproportionately helped the wealthy avoid taxes the most.

Why Obama Wants to Tax College Savings - TIME

This point particularly caught my eye:

"And, in part because high earners typically owe higher taxes, the wealthy reaped large tax breaks from using 529s. In 2012, the GAO found that Americans who made less than $100,000 withdrew a median $7,491 from their 529s, saving just $561 on their taxes. But Americans who earned more than $150,000 withdrew a median $18,039, saving $3,132 in taxes."

I hope there is a compromise here and that the tax break can be maintained on a progressive basis, i.e. the lower your income, the greater the amount of tax break you can retain over time.

Once again screwing people trying to be self reliant

 

[MG1968]

150k/year is good money in Knoxville, but in places like New York and LA, you're barely breaking even. LG and Time magazine apparently don't care about that, screw those "rich" people and take that 3 grand they're stealing from the government and give it to somebody else, because that's what's "fair".

 

[utvolpj]

I think you are oversimplifying it pretty markedly, here.

Not at all. The ones most affected will be middle class families saving for college. These are not accounts used by the wealthy as is being suggested.

It also fails to account for how many will drop the plans when they provide no benefit

 

[tumscalcium]

Am absolutely stupid and pathetic idea to take from people that are saving.

Right on par for Obama. His voters ought to be ashamed of themselves.

 

[lawgator1]

LG 50% of 529 plans are owned by people who make under $50k. It's seriously a horrible idea

I'm saying I agree with you that people making that kind of money should retain all, or at least a large part of, their current tax break. I am hoping that Obama and the GOP can come up with a compromise to achieve that.

 

[lawgator1]

150k/year is good money in Knoxville, but in places like New York and LA, you're barely breaking even. LG and Time magazine apparently don't care about that, screw those "rich" people and take that 3 grand they're stealing from the government and give it to somebody else, because that's what's "fair".

Again, that is oversimplifying things. But, since the programs are administered at the state level, those sorts of distinctions can be preserved by state income tax policy, which is mentioned I believe by OP's article or the TIME piece.

 

[lawgator1]

Not at all. The ones most affected will be middle class families saving for college. These are not accounts used by the wealthy as is being suggested.

It also fails to account for how many will drop the plans when they provide no benefit

I'm saying the proposal should be modified to allow the middle class to retain as much of the tax break as possible.

 

[utvolpj]

I'm saying the proposal should be modified to allow the middle class to retain as much of the tax break as possible.

So it's yet another Robin hood scheme from the left. Class warfare only works for so long. When those upper incomes start seeing how worthless the plans are they will stop using them

 

[volinbham]

"And, in part because high earners typically owe higher taxes, the wealthy reaped large tax breaks from using 529s. In 2012, the GAO found that Americans who made less than $100,000 withdrew a median $7,491 from their 529s, saving just $561 on their taxes. But Americans who earned more than $150,000 withdrew a median $18,039, saving $3,132 in taxes."

.

Who didn't see this coming - at first "rich" was more than $250K, then it was $200K, now it $150K is the target.

 

[MG1968]

Who didn't see this coming - at first "rich" was more than $250K, then it was $200K, now it $150K is the target.

In the '90's Dick Gephardt and other democrats thought that you had "won life's lottery" if you were earning 70k.

 

[lawgator1]

Who didn't see this coming - at first "rich" was more than $250K, then it was $200K, now it $150K is the target.

Or it could be that those were the figures that were available from the GAO.

Duh.

 

[utvolpj]

Or it could be that those were the figures that were available from the GAO.

Duh.

A family of 4 pulling in $150k is middle class so they would be exempt under your ideas. Given that, including them as evidence is either worthless or completely invalidates your points. Which is it?

 

[lawgator1]

In the '90's Dick Gephardt and other democrats thought that you had "won life's lottery" if you were earning 70k.

As you point out its to some degree a function of the cost of living where you live. Getting a $3,000 tax break in New York is not as momentous as getting one in Knoxville.

Now, more to the point, the 529 struck me as a distinctly middle class notion. A family making good money, but not the kind of money where they could just use savings to pay for college when the time came, could 1) save money in a program that allowed them to use pre-tax dollars to pay for school at a lower rate when the time came; and 2) locked in the state school's tuition price so that the cost of education was lower when the time came.

I would still support that and hope that the final legislation preserved both of those goals. On the other hand, I would not want the program to be used simply to park money somewhere to get favorable tax treatment when it is not actually necessary for that family.

The solution may be simply to leave the program in place, but change eligibility. For example, to qualify to use it, household income must be below a certain threshold, perhaps $200,000. We can debate the specific number, but my point is that, for example, there is no reason to give the Clintons or the Romneys of the world a tax break by allowing them to shelter "education" money in that manner.

 

[volinbham]

Why not give it to everyone? The logic for the deduction is that we want to encourage families to invest in their children's education. It isn't a tax shelter anymore than mortgage interest deduction is a tax shelter. It is an incentive for particular investment activity that society has deemed valuable to society.

 

[Weezy]

Is his plan to have this effective immediately? How would this be any different than going after a Roth IRA/401k? You are reneging on a promised tax benefit.

 

[volinbham]

A family of 4 pulling in $150k is middle class so they would be exempt under your ideas. Given that, including them as evidence is either worthless or completely invalidates your points. Which is it?

Yep - by using $150K as an example of someone too well off to merit the deduction implicitly ratchets down the definition of rich. Whether the GAO used the number or not.

 

[golfballs]

This should be very cut and dry - if the money is used for college then it should be tax free, otherwise treat it as income.

 

[volinbham]

As PJ suggested here and I have elsewhere the more pernicious issue is on one hand offering "Free" CC to everyone while at the same time proposing to increase taxes on families that save for college. (Oddly enough, the Romney's and Clinton's kids would get free CC under this POTUS plan - why is he pandering to the rich?)

It is bizzarro world thinking.

It's telling too how the mentality is that your earnings belong to the government unless they decide to let you keep more provided you spend it on the right things.

 

[govols09]

LG, I actually can see your point of view on a lot of topics here that I disagree with you on. Here however, I honestly have not heard another person besides you in favor of this. What exactly do you like about this proposal? This is perhaps the best way for middle class families to save for college.