Class Consciousness and College Education: 529 Plan Strikes Nerve

Josh Headshot 2President Obama released his budget proposal this week outlining a number of commonsense ideas to reduce inequality and create an even playing field. One provision contained in his budget that certainly won’t become law anytime soon is a proposed levy on college savings accounts known as 529 plans, which the White House has publicly rescinded. The death of this plan speaks to the class divisions in both the Democratic and Republican parties wherein upper class interests are held above all else.

The White House released their proposed changes to 529 plans two weeks before releasing their full budget and the reasoning was pretty simple. These college saving accounts allow parents to put aside money to earn tax-free interest to be spent on college tuition. They are widely used, over seven million people have one, but the benefit is skewed sharply to those with high incomes according to the Government Accountability Office. Families with 529 accounts have three times the income and 25 times the financial assets as those without. About 70 percent of plan holders have incomes over $200,000 per year. The plans’ are also very expensive costing the federal government $1.6 billion per year.

The President proposed eliminating the plans’ tax-free status in order to increase and make permanent the American Opportunity Tax Credit, a partially refundable credit worth up to $2,500 for families who earn up to $180,000 a year. The plan also simplified the tax code by reducing the six higher education tax credits into two while providing a tax cut to over eight million families.

If implemented, this change would have shifted the tax expenditures for higher education away from upper middle-class and upper class families, aka those who can afford to put aside significant sums for tuition payments, towards lower middle class and working class families, aka those who cannot.

It’s worth noting that my college education was partly funded through a 529 savings plan alongside other family contributions, scholarships, and, of course, debt. So I understand how some could be a bit peeved to lose this tax advantage especially given the absolutely skyrocketing cost of college. However, the backlash against the proposal was significantly larger than I, or seemingly anyone in the Obama administration, could anticipate.

Spurred on by anti-tax crusader Grover Norquist’s Americans for Prosperity as well as conservative radio hosts and a bipartisan cacophony of lawmakers, the backlash against the proposal was swift. In eight short days, the proposal, already a long shot, was dead and buried as leaders from each party jockeyed for credit in causing its demise. This debacle proved once again that working families don’t have the same influence as the wealthy and near-wealthy who can bend our government’s will to do their bidding.

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