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1 SoCaroLion  Feb 4, 2015 10:33:18am

Mr. Drum’s assertion that President Obama’s “tuition (free community college) plan met an instant death” because it lacked “the support of the well-off (whatever that means)” is intellectually dishonest.

President Obama’s proposal was unpopular and ultimately scuttled for two reasons. First, the President (as is the case for virtually any Presidential proposal) was sketchy on the details. “The plan would be funded by the federal government and participating states, but White House officials declined to discuss how much it would cost or how it would be financed.New York Times, Jan. 8, 2015

Second, 14 days later the President announced his proposed plan to fundamentally alter the nature of 529 savings plans by taxing all withdrawals from these accounts, the very reason 529 savings plan exist. New York Times, Jan. 22, 2015

Consequently, anyone who established a 529 for their kid(s) future education immediately ‘put two-and-two together’, realizing that the President’s free community college proposal would be financed, in part, through their hard-work and fiscally responsible planning.

Furthermore, Mr. Drum’s class envy ploy is also distressingly dishonest. For instance, from the same Jan. 22, 2015 NYT article: “Still, Mary Morris, chairwoman of the College Savings Foundation, a nonprofit that supports the programs, said middle-class families still reaped great benefits from 529s. She said she would expect average account balances and monthly contributions to be far higher if only the most affluent families were benefiting. The average value of a 529 account is $19,774, according to Strategic Insight, while it estimates the average contribution to accounts that receive regular electronic contributions is about $175 a month.” (Emphasis mine)

The fact of the matter is 529 savings plans are extremely attractive to anyone (virtually anyone) who is acting proactively in regard to their child’s education. You certainly don’t have to be “well off.”

2 Lumberhead  Feb 4, 2015 10:52:45am

re: #1 SoCaroLion

From NY Times Jan 29:

In pushing its proposal, the White House pointed to Federal Reserve data showing that 70 percent of balances in the college accounts were held by families making at least $200,000 a year


If you make $150,000 to $225,000, you make about two to three times the national median income for a married couple. The list of occupations that can get you into this income bracket — government official, academic, lobbyist, journalist — can sometimes make it hard for people in political circles to remember that 92 percent of American married couples make less than $200,000 a year.


This specific controversy involves so-called 529 accounts, named after the section of the tax code establishing them, which allow parents to save for their children’s college tuition and earn tax-free investment returns. Like most tax-preferred accounts, 529s are most useful to affluent people. Partly that’s because you can use them only if you have extra money to put in the account, and partly that’s because avoiding income tax gets more valuable the higher your income tax rate is.

The 529s are even more weighted toward the wealthy than other savings plans because they have no income limit and very loose contribution limits. Roth I.R.A. accounts and 529 accounts offer similar tax benefits, but a married couple can contribute only $11,000 a year to Roth accounts, and only if they make less than $183,000 a year.

Most 529 users are doing quite well for themselves. A 2012 study from the Government Accountability Office found that only 3 percent of households had a 529 account (or a similar account called a Coverdell Education Savings Account), and their median income was $142,400, three times the average for families with children in college.

But in some cases, they can be much wealthier. Consider Barack and Michelle Obama. They made $2.66 million in 2008, mostly from book royalties, and deposited $240,000 into 529 accounts for Sasha and Malia’s education. Some conservatives have pointed to this action as evidence of the president’s hypocrisy, but what it really shows is that the instinct to defend 529s as a “middle-class” tax provision leads to big benefits for very high-income families like the president’s.

My emphasis added.

3 Maggie's Pa  Feb 4, 2015 11:37:37am

Keep in mind the windfall tax break received by the 529 saver is the amount of interest accrued on the money they put away. The 529 program doesn’t make savings tax deductible, only the “earnings” of the savings account. Considering that’s next to nothing there is no incentive to participate, thus the three percent utilization. The really big savings is the income tax that is not paid when disbursements are made in the name of the college student.

4 SoCaroLion  Feb 4, 2015 11:49:41am

Lumberhead (or New York Times article):

Are individuals and married couples making more than $150,000 per year more easily able to contribute to and compile savings in 529 plans? I suppose.

On the other hand, it is inappropriate for the NYT (and you, by extension) to assume that two entities earning $150,000 or more - one living in Greenwich Village (for example) and the other living in Binghamton, NY - share similar monthly expenses.

Therefore, whether or not “529 users are doing quite well for themselves” is generally irrelevant, primarily because virtually anyone (i.e. any adult with a pulse) is eligible to take advantage of the tax benefits of a 529 savings plan.

Here’s a tax credit solution: Considering that the vast majority of Federal income taxes are collected from the top third of taxpayers, give every taxpayer with children in the bottom two-thirds the option to divert a portion, if not all of their yearly Federal tax income contribution to a 529 savings plan. Then tax it at a very modest rate, maybe 0.5%, when it is withdrawn for college. Now that would help the ‘middle class.’

5 gwangung  Feb 4, 2015 12:40:34pm

re: #4 SoCaroLion

Tax credit schemes tend to benefit people with more taxes; i.e., higher incomes. Their impact, by definition, has more impact on upper class, not middle or lower class. This is particularly so when costs outpace income growth.

6 Lumberhead  Feb 4, 2015 12:55:13pm

re: #4 SoCaroLion

Just because couples that make 150K to 200K aren’t part of the 1% doesn’t make them part of the middle class.
Neither I or the NY Times said that someone someone living in Greenwich Village had the same expenses as someone living in Binghampton. My contention is that neither of them are middle class.
Virtually anyone might be eligible to take advantage of 529’s but 97% of households aren’t. Most middle class households don’t have $175 extra per month.
I just don’t see how someone earning “three times the average for families with children in college” is considered middle class.

7 SoCaroLion  Feb 4, 2015 1:08:04pm

re: #5 gwangung

With all due respect, you seem to have read “Here’s a tax credit solution” and stopped reading.

Before I go on, please consider that it was Kevin Drum of the Mother Jones article from which Lumberhead snipped that mentioned, “You can offer tax credits rather than tax deductions.” (Emphasis mine)

So, allow me to reiterate: My very humble proposal was to make a unique option available to only the bottom third (33.3%) or bottom half (50%) of taxpayers (the middle class Lumberhead’s NYT article keeps harping on), the percentage of taxpayers who do not pay the overwhelming majority of Federal income taxes. The option to them, and only them: Divert a portion, if not all of their yearly Federal tax income contribution to a 529 savings plan.

Also, Gwangung, I wholly disagree with your point regarding tax credit “schemes” as it absolutely does not change the fact that virtually anyone, i.e. virtually any adult of any socio-economic level or status (upper-, middle-, or lower-class), is able to leverage the tax benefits of a 529 savings plan. And it’s certainly not privileged information.

8 SoCaroLion  Feb 4, 2015 1:33:34pm

re: #6 Lumberhead

Just to clarify: 529 plans are generally for people with young children who will attend college in the future. For example, while our 2 1/2-year-old daughter was still in utero, my wife and I established a 529 plan for her, enabling us, our parents, and our other relatives to contribute as much or as little money as they wish for her future college education. So, when were heard President Obama’s proposal to fundamentally alter the 529 by taxing the future withdrawals, we were obviously dismayed. After all, his proposal would essentially be punishing people who planned ahead and made wise personal choices about themselves and their families.

Unfortunately, too many people do not care. However, it is not up to me to judge other people’s priorities and lifestyles. Consequently, what may be middle-class to you, may not be middle-class to me. And so on.

Overall, what it really boils down to: priorities, choices, and individual freedom. And I have a feeling that’s the point upon which will we agree to disagree.

Also, with absolutely zero sarcasm or snark, thank you for sharing your personal opinion rather than speaking wholly through quotes. I was sincerely hoping you would respond that way. :-)

9 Lumberhead  Feb 4, 2015 1:54:38pm

re: #8 SoCaroLion

Unfortunately, too many people do not care. However, it is not up to me to judge other people’s priorities and lifestyles.

It appears to me that you are judging them in your first sentence.

Overall, what it really boils down to: priorities, choices, and individual freedom. And I have a feeling that’s the point upon which will we agree to disagree.

Yes, it seems that we will disagree. What it boils down to, to me, is income. Everyone has the ability to participate in 529’s but everyone doesn’t have the means to do so.
As to priorities, choices, and individual freedom, that cuts both ways. A couple making 200K per year has the freedom to choose to make living in Greenwich Village a priority. There are places outside of Manhattan that offer safe neighborhoods with good schools at a lower cost of living.

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