EXCERPT A White House proposal to trim tax benefits of popular college-savings accounts is stirring opposition in Congress, and complicating negotiations over efforts to streamline education tax breaks. The proposal, part of a tax plan released by President Barack Obama over the weekend, would scale back a significant break that Republicans generally want to preserve—taxpayers’ ability to use money earned in 529 college-savings plans on a tax-free basis.... Currently, people can withdraw money from the 529 accounts without paying taxes on the earnings. Under the Obama plan, the gains earned on those investments would be subject to tax as they are withdrawn to pay for education expenses.... [S]ome Republicans bristled at the idea, saying it could force more students into lower-cost college options, such as community colleges. Mr. Obama recently proposed allowing qualifying students to attend two years of community college free. “It’s a tax increase to middle-class families that are using 529 plans to save for their kids’ education,” said Rep. Lynn Jenkins (R., Kan.). “The president is essentially forcing many middle-class families into a huge federal program to attend community college.” Ms. Jenkins said she worried that Mr. Obama’s proposal to limit benefits of college-savings accounts could risk creating a “21st century caste system where the wealthy send their kids to four-year colleges and the middle class send their kids to community colleges.” Ms. Jenkins, a member of GOP leadership, is expected to introduce later this week a measure that would preserve the current tax treatment of the college-savings plans, with some tweaks designed to modernize them, such as allowing the savings to be used to buy computers. Tax-free distributions from 529 accounts were first allowed under the second Bush administration. Experts say that tax break—part of President George W. Bush’s 2001 tax-cut package—helped lead to a surge in the use of 529 accounts.... The White House proposal appeared unlikely to win much Republican support. “You don’t produce a healthy economy and an educated workforce by raising taxes on college savings,” said Brendan Buck, a spokesman for Rep. Paul Ryan (R., Wis.), chairman of the House Ways and Means Committee. wsj/articles/obama-proposal-to-cut-529-plan-tax-benefits-meets-opposition-1421811117
Posted on: Wed, 21 Jan 2015 08:18:57 +0000
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