Death to the 529 / long live the 529

Obama flip-flops faster than I can blog!  Prezzo has already walked back his proposal to change the 529 college-saving tax break, but I have a post about it queued up, and by gum I’m gonna publish it.

Here’s the plan that just got shelved.  From now on, capital gains on contributions you stow in a 529 plan won’t be tax free anymore — they’ll just be tax-deferred, as with a retirement plan.  In essence, it takes away a tax break whose benefit flows predominantly to high-income families (some 529 money is held by middle-income parents, but under Obama’s plan the $500 or so they’d lose on their 529 was more than offset by an AOTC expansion.)

OK, this Congress is as likely to roll back a tax break for high earners as they are to rename Reagan National Airport after Pete Seeger, so this isn’t actually happening, but I’m just saying, that’s the plan.

People are mad, and feel like they’ve been bait-and-switched. My FB feed, populated by dutiful savers like me, is full of ire. Mark Kantrowitz, in the New York Times:

He went as far as saying that the proposal could be characterized as a broken promise. “People saved money in 529 plans because of the expectation that the favorable tax treatment would continue,” he said.

But why does the New York Times let Mark Kantrowitz say this when it’s plainly not true? I saved money in a 529 plan. And the favorable tax treatment for that money will continue. When I take it out, I won’t pay a dime on any capital gains.

For money I put in later, it’s another story. But so what? If something’s on sale today, nobody’s breaking a promise to me when it’s not on sale tomorrow. I guess it’s strictly true that the proposal “could be characterized as a broken promise.” But it would be better to say it “could be characterized as a broken promise by people who don’t mind characterizing things as different things.”

A broken promise would look more like a state government defaulting on money it owes the thousands of middle-class taxpayers whose pensions it mismanaged.

 

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One thought on “Death to the 529 / long live the 529

  1. JSE says:

    Actually, I’m a little concerned about the numbers in that NYT story. They say the AOTC benefit is worth $2500 and the 529 $561 (for middle-class families). But I think (I’m not sure, it’s hard to tell from the GAO report) that it’s $561 per year of college, while I think (again not sure) that the AOTC expansion is $2500 per student. AOTC still comes out ahead but it’s much closer.

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