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Obama's Plan to Tax College Savings Accounts Is Less Scary Than It Sounds
Obama's Plan to Tax College Savings Accounts Is Less Scary Than It Sounds
Almost half of the families with 529 plans make more than $150,000 a year, and their median total financial assets are about 25 times more than those who don't have 529s. Wealthier families get a larger benefit, too. Families making more than $150,00 saved an average of $3,132 a year on taxes, compared with $561 for families who earned under $100,000.
...
Obama pairs these reductions with expanding the remaining education incentive, the American Opportunity Tax Credit, which is set to expire in 2017. Obama signed the AOTC into law in 2009 as part of the federal stimulus program, and it gives up to $2,500 in credits to families with incomes as high as $180,000. The AOTC does share some of the regressive nature of the tax programs—about a quarter of families that claim the credit make more than $100,000—so Obama's new proposal would make the AOTC permanent and take steps to boost how the AOTC helps lower-income families.
In particular, the plan would increase how much of the credit is “refundable," which means that more of it will count in a family's tax refund if they don't earn enough to owe federal taxes. It also makes it easier for students who receive Pell Grants to get the AOTC credit, which was so complicated before it required a five-page fact sheet from the IRS just to show how it can most help families.
A White House spokesperson says the expansion of the AOTC will far outweigh the elimination of the other tax benefits, saying Obama's plan amounts to "nearly $50 million more" in additional tax cuts over the next decade. There are compelling arguments that direct grants are a more effective way to help low-income students than tinkering with the tax code. Overall tax incentives don't actually increase the likelihood a student attends college, for example. But these changes at least try to give more aid, however inefficient, to the families most in need.
http://www.businessweek.com/articles/2015-01-21/obama-s-plan-to-tax-college-savings-accounts-is-less-scary-than-it-sounds
Almost half of the families with 529 plans make more than $150,000 a year, and their median total financial assets are about 25 times more than those who don't have 529s. Wealthier families get a larger benefit, too. Families making more than $150,00 saved an average of $3,132 a year on taxes, compared with $561 for families who earned under $100,000.
...
Obama pairs these reductions with expanding the remaining education incentive, the American Opportunity Tax Credit, which is set to expire in 2017. Obama signed the AOTC into law in 2009 as part of the federal stimulus program, and it gives up to $2,500 in credits to families with incomes as high as $180,000. The AOTC does share some of the regressive nature of the tax programs—about a quarter of families that claim the credit make more than $100,000—so Obama's new proposal would make the AOTC permanent and take steps to boost how the AOTC helps lower-income families.
In particular, the plan would increase how much of the credit is “refundable," which means that more of it will count in a family's tax refund if they don't earn enough to owe federal taxes. It also makes it easier for students who receive Pell Grants to get the AOTC credit, which was so complicated before it required a five-page fact sheet from the IRS just to show how it can most help families.
A White House spokesperson says the expansion of the AOTC will far outweigh the elimination of the other tax benefits, saying Obama's plan amounts to "nearly $50 million more" in additional tax cuts over the next decade. There are compelling arguments that direct grants are a more effective way to help low-income students than tinkering with the tax code. Overall tax incentives don't actually increase the likelihood a student attends college, for example. But these changes at least try to give more aid, however inefficient, to the families most in need.
http://www.businessweek.com/articles/2015-01-21/obama-s-plan-to-tax-college-savings-accounts-is-less-scary-than-it-sounds
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