Timeline: Obama Hypocrisy on 529 College Savings Plans

Posted by John Kartch on Tuesday, January 27th, 2015, 5:46 PM PERMALINK

August 3, 2006: As U.S. Senator, votes to make 529s permanent.

2006: Praises 529s in his book, The Audacity of Hope.

2007: Makes a $240,000 contribution to his own 529 accounts.

Sept. 9, 2009: White House Task Force on Middle Class Working Families issues a detailed report on 529s. Top conclusion from the report: 

"529 plans are an attractive and convenient means of saving for college.”

The report makes several recommendations on how to further promote 529s.

Sept. 9, 2009: Vice President Biden, Treasury Secretary Geithner, and Education Secretary Arne Duncan share a stage at a Middle Class Task Force event at Syracuse University. Geithner strongly touts 529 plans:

"As the Vice President has said, we are also working to implement, expand or improve a wide array of other government programs that encourage education savings and increase college enrollment. Today I want to highlight one program in particular, Section 529 savings plans. 

These plans can be an immensely effective way for Americans to save for college. They are generally administered by the states, and they allow people to put aside money for college and enjoy investment earnings that are free of federal taxes and, in some cases, receive state tax benefits, as well. When state tax benefits are included, a typical middle class family can accumulate 25 percent more in 529 accounts than they can in a typical taxable savings account." 

Sept. 9, 2009: Official White House statement praises 529s:

"A 529 plan, offered by states, provides a convenient, tax-preferred way for families to save for college, and works much like ROTH IRAs, wherein contributions are made with after-tax income, returns accumulate tax free and distributions can be for qualified educational expenses without taxes." 

July 23, 2010: President Obama sits for a lengthy interview on ABC’s Good Morning America. He was asked, “can you feel the pain directly that other Americans are feeling?” Obama answers by citing his 529s as a example of how he can identify with the middle class: 

"Well, part of it has, that part that is devoted to Malia and Sasha's college fund was in a 529, you know, that had been set up when I was still a state senator. And, obviously, that goes up and down with the stock market and so it's lost value like everybody else."

Jan. 17, 2015: On a Saturday evening, the White House shares with reporters an outline of President Obama’s tax plan. The ten-page, single-spaced document describes 529s as “upside-down. 

Jan. 23, 2015: White House Council of Economic Advisers chairman Jason Furman, in an interview with BloombergBusinessweek, deems 529s “ineffective” and “tilted towards the upper end."

Jan. 23, 2015: White House spokesman Josh Earnest dismisses a reporter question on 529s:

"My guess is those who are saying that are critics of the president. And that’s fine. The—I think the facts about the president’s proposal speak for themselves."

Jan. 27, 2015: Anonymous Obama administration official announces that the White House is abandoning its plans to tax 529s.

See also:

Obama calls for $320 Billion in New Taxes

Obama's 529 College Savings Plan Tax Hike is an Assault on the American Dream

Obama Tax Hike on College Savings Plans Breaks Middle Class Tax Pledge

Obamas Make Jumbo 529 Contribution While Pushing Repeal for Everyone Else

Will Obama's 529 Tax Hike Also Hit Disabled Kids?

As Senator, Obama Voted to Make 529 College Savings Plans Permanent

Obama Praised 529 College Savings Plans in "The Audacity of Hope"


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Super Bowl Stadium Drives Glendale Broke, Despite Outrageous Taxes

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Posted by Will Upton on Tuesday, January 27th, 2015, 3:18 PM PERMALINK

The 2015 Super Bowl will be played at the University of Phoenix Stadium in sunny Glendale, Arizona. At first glance, it is a nearly perfect location for what is arguably the biggest event in American professional sports (my apologies to the World Series). But in an odd twist, considering the sports world’s current obsession with the Super Bowl bound New England Patriots and #DeflateGate, the financing scheme behind the University of Phoenix Stadium has left the City of Glendale’s finances… deflated.

Financing sports arenas and stadiums through taxes and public debt is never a good idea. Americans for Tax Reform has addressed this before. But the University of Phoenix Stadium in Glendale really takes the cake. The City of Glendale itself has a bit of a reputation, according to the New York Times, of throwing money at sports facilities in efforts to lure sports team there. The NYT notes: “But the scale of spending in the city of 230,000 residents is unique. According to Moody’s Investors Service, Glendale’s debt is equal to 4.9 percent of its tax base, nearly four times the national median and twice the average rate for cities in Arizona. More than 40 percent of the city’s debt is dedicated to paying off sports complexes.”

In the case of the University of Phoenix Stadium, advocates attempted to fund its construction via rental car taxes – specifically a 3.25-percent tax on rentals. They claimed that out-of-state tourists would pay the brunt of the tax on rental cars and thus finance the stadium – though, again, Americans for Tax Reform has detailed how rental car taxes actually disproportionately hit local taxpayers hardest. Instead, an Arizona judge ruled last year that rental car taxes are vehicle taxes and are thus required, by the Arizona constitution, to be spent on projects such as road and highway construction – not sports stadiums. According to The Republic, this ruling could leave Arizona on the hook for roughly $150 million.

Even without the legal ruling against the stadium financing, it is clear that taxes such as rental car taxes are discriminatory, reduce local accountability as to how revenue is appropriated, and play into the misguided notion that if you tax it, they will still come.

The Associated Press notes that most Super Bowl revelers aren’t even staying in Glendale, opting to stay and enjoy the nightlife in nearby Phoenix and Scottsdale instead. Glendale, and Maricopa County as a whole, relies on a 1-percent tax on hotel occupancy for, you guessed it, repaying $1.2 billion in bonds to finance stadium construction. Glendale’s predicted boost in tax revenue appears to be up in smoke, leaving the city’s taxpayers on the hook with even more debt.

Photo Credit: 
Peter Eisenman

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CBO Still Refuses to Score Obamacare, Ignores 15 Tax Hikes in Healthcare Law

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Posted by Ryan Ellis on Tuesday, January 27th, 2015, 12:29 PM PERMALINK

The Congressional Budget Office (CBO) this week released their annual Budget and Economic Outlook which sets the budget baselines and estimates for the whole year.

Buried in Appendix B of the report is CBO's attempt to provide an updated score of Obamacare. But that's not what they did.  They only scored the "coverage provisions" of the law, ignoring some fifteen tax increases which are also a part of Obamacare and its cost to taxpayers.

Here's what the report says about its half score:

"Those estimates address only the insurance coverage provisions of the ACA and do not reflect all of the act’s budgetary effects. Because the provisions of the ACA that relate to health insurance coverage established entirely new programs or components of programs and because those provisions have mostly just begun to be implemented,CBO and JCT have produced separate estimates of the effects of the provisions as part of the baseline process. By contrast, because the provisions of the ACA that do not relate directly to health insurance coverage generally modified existing federal programs (such as Medicare) or made various changes to the tax code, determining what would have happened since the enactment of the ACA had the law not been in effect is becoming increasingly difficult. The incremental budgetary effects of those noncoverage provisions are embedded in CBO’s baseline projections for those programs and tax revenues, respectively, but they cannot all be separately identified using the agency’s normal procedures. As a result, CBO does not produce estimates of the budgetary effects of the ACA as a whole as part of the baseline process."

This is just another version of "we can't score it anymore" that CBO Director Doug Elmendorf (and his Gruber-gate methodology on Obamacare) has become known for.

List of tax hikes ignored in the CBO half-score of Obamacare

-3.8 percent surtax on investment income
-Hike in top Medicare payroll tax rate to 3.8 percent
-Medicine cabinet tax
-Additional surtax on health savings account (HSA) distributions
-Cap on flexible spending accounts (FSAs)
-Medical device tax
-High medical bills tax
-Tanning tax
-Tax on employer retiree drug coverage in Medicare
-Charitable hospital tax
-Pharmaceutical manufacturers tax
-Health insurance tax
-Tax on executive compensation in the health sector
-"Black liquor" tax hike
-Codification of "economic substance doctrine"

All these tax increases can be read about in detail here.

All this is simply not credible.  The Joint Tax Committee (JCT) produced all sorts of revenue estimates in the larger CBO report.  JCT projects how much the death tax will collect each and every year for the next ten years, for example.  It claims to know how much the federal government will collect in gas taxes.  Is it believable that JCT could not also project how much a dozen or so Obamacare tax provisions will generate?

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Obamacare: Created behind closed doors...by extreme partisans...without dissenting opinions...ignoring doctors...spread by lies...glossed over by media propaganda...rushed through Congress...deemed "passed" through unprecedented partisan Congressional action...continued to be defended with lies...glossed over by media Liberals...and helping few Americans while costing more than the actual people ($$$-wise) that it helps.

It is the worst piece of legislation in U.S. history.


Yeah, I don't feel like doing my job either. Anyways, if I did I would just anger the boss by projecting losses as far as the eye can see . . .

Only in Federal Bureaucracy Land is that kind of attitude even considered employable.


..and the left is so proud of it that they proclaim it "the law of the land." Lie of the Land is more accurate.

Obama Praised 529 College Savings Plans in “The Audacity of Hope”

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Posted by John Kartch on Tuesday, January 27th, 2015, 8:15 AM PERMALINK

In his 2006 bestseller, The Audacity of Hope, then-Senator Barack Obama praised the tax-free college savings accounts he now seeks to scuttle.

On page 165 — within a chapter titled “Opportunity” — Obama writes:

But no matter how well we do in controlling the spiraling cost of education, we will still need to provide many students and parents with more direct help in meeting college expenses, whether through grants, low-interest loans, tax-free educational savings accounts, or full deductibility of tuition and fees.

One year later, in 2007, Obama took advantage of the opportunity afforded by 529 college savings plans. As first reported by the Wall Street Journal, Obama made a jumbo $240,000 contribution to his own family 529 plans. (View the actual tax form here).

Also in 2006, then-Senator Obama voted to make the current tax treatment of 529 plans permanent.

Fast forward to 2015. On Jan. 17, late on a Saturday night, the Obama administration proposed raising taxes on 529 accounts, criticizing the plans as “upside down.”

Then on Jan. 23, White House Council of Economic Advisors chairman Jason Furman told BloombergBusinessweek that 529 plans are “ineffective” and "tilted towards the upper end."

The Obama 529 tax hike plan, and arrogant comments to the media -- often from anonymous administration officials -- have since caused a nationwide uproar. And according to the College Savings Foundation:

-"Over a million middle class students are currently enrolled in college and benefiting from 529s."

-"Almost 95 percent of 529 accounts are in households with income below $250,000."

The $250,000 statistic is significant in rebutting Obama administration claims: It is the number President Obama has used repeatedly since 2008 to define "middle class."

See also:

Obama calls for $320 Billion in New Taxes

Obama Tax Hike on College Savings Plans Breaks Middle Class Tax Pledge

Obama's 529 College Savings Plan Tax Hike is an Assault on the American Dream

Obamas Make Jumbo 529 Contribution While Pushing Repeal for Everyone Else

Will Obama's 529 Tax Hike Also Hit Disabled Kids?

As Senator, Obama Voted to Make 529 College Savings Plans Permanent

Photo Credit: 
Peter Howe

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Steven Colantuoni

Save for almost for almost twenty years under the 529 as a consequence of how the accounts were set up to function. Now they want to ding those of us who saved for a decade or two to fund "free" education.

Public Backlash of Obama’s 529 Plan Proposal Continues to Grow

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Posted by Dorothy Jetter on Monday, January 26th, 2015, 4:25 PM PERMALINK

President Obama rolled out a new initiative for “free” community college in his State of the Union Address, but in order to fund this program the administration has proposed taxing 529 college savings plans.  In 2006, Obama voted to keep these plans permanently tax free, but now in 2015 the administration has described the 529 plan as “ineffective in serving its goals.”

In their current form, 529 plans allow families to save for their children’s education by putting after tax savings into a tax free account that collects interest.  The account remains untaxed, so long as the savings are used to pay for college.

As Ryan Ellis and John Kartch of Americans for Tax Reform point out, college savings plans will now be subject to taxation under Obama’s new proposal:

“Under Obama’s plan, earnings in “Section 529” (named for its location in the Internal Revenue Code) college savings plans will face full income taxation upon withdrawal.  Under current law, earnings growth in 529 plans is tax-free if account distributions are used to pay for college tuition and fees. The Obama plan will tax earnings in these accounts even if they are used to pay for college tuition and fees.”

The people who use these accounts are largely middle class Americans.  The Wall Street Journal quoted Ryan Ellis in an article on January 23:

“This idea that this is an account for the preserve of the Huxtables out there that make $250,000 a year is kind of ridiculous. Many owners of 529 plans are young parents who take pride in saving money in advance for their children’s college education. You’ve made them look like chumps for saving whatever they’ve saved so far.”

Perhaps the Obama Administration did not foresee a public outcry of such magnitude, but this proposal has been widely ill-received. Many are criticizing this proposed plan for what is really is, an attack on the middle class.  It would deter middle class families from saving for college.  In doing so, the Obama Administration is, yet again, making people more dependent on big government and less reliant on themselves.  

Betty Lochner, head of the College Savings Plan Network, explains:

“What these accounts are designed for is the middle-income families that can’t afford to pay as you go and aren’t going to get need-based aid.  It doesn’t make any sense to take away incentive to save.”

State treasurers from Iowa, Kansas, Missouri, and Nebraska have all spoken out.  Kansas Treasurer Ron Estes reasoned, “Why would you ever have 529s anymore? If I have to pay taxes on my earnings, why don’t I keep it in my own individual investment account?”

Joe Hurley, founder of SavingforCollege.com, described this idea as “anti-middle class for families trying to afford college.”   Mark Kantrowitz, publisher of Edvisors.com went as far as to say, “‘this would eliminate all new investment in 529 plans.”

While the administration has referred to 529 plans as “inefficient”, this must not have been the case in 2007 when Obama and his wife invested $240,000 in 529 plans for their own daughters.    President Obama’s family benefited from the 529 plan, but now he wants to take away the opportunity for other Americans to do the same.       

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He is a clown voted into office by a legion of clowns!


RACIST! Blacks are known not to save, while whites are known to have savings, making Obama's wanting to reduce 529's that blacks have seldom participated. Free anything appeals to black voters.

gift to minors

once again, only the very poor or very wealthy can go to college. It means that the middle classis getting squeezed out

Proposed Tax Hikes in Kansas Won't Solve Overspending Problem; Will Hurt Small Businesses

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Posted by Will Upton on Monday, January 26th, 2015, 10:55 AM PERMALINK

As a part of his 2015 Kansas budget, Gov. Sam Brownback has proposed tax increases on alcohol and tobacco products. These tax increases would have a detrimental impact on  working class consumers and small businesses alike. In a letter to the Kansas legislature, Americans for Tax Reform president Grover Norquist noted:

Increasing the sate cigarette tax from 79-cents to $2.29 per pack represents a 190% increase in the tax rate on mostly middle and lower class consumers. Increasing the state tax on liquor from 8% to 12% would have a detrimental impact on many of Kansas’s small businesses who are reliant on liquor revenue – small businesses that the 2012 and 2013 tax reform legislation was designed to help and grow... A pack-a-day smoker would end up paying an extra $547.50 in taxes a year. Kansans living along the Missouri border may opt to avoid the tax altogether by purchasing their tobacco products in Missouri – where the tax would be lower. If consumers flock to businesses across state lines, they may make other purchases while shopping for tobacco – hurting the bottom lines of Kansas retailers.

In addition to the burdensome costs to retailers and consumers, sin taxes such as those proposed by Gov. Brownback are traditionally a declining source of revenue. Kansas has an overspending problem and it can be solved not by hiking taxes but by eliminating government waste and reducing spending. The ATR letter to the Kansas legislature notes:

States should aim to increase spending at the rate of inflation and population growth. Using those metrics Kansas has over-spent by about $12 billion between 2000 and 2009. That’s an over one-billion-dollars-per-year overspending problem. That data point alone should put to rest any claims that there is no room to cut from the state budget.

To read the full letter, click here.

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Marius Watz

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As Senator, Obama Voted to Make 529 College Savings Plans Permanent

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Posted by John Kartch, Ryan Ellis on Monday, January 26th, 2015, 10:21 AM PERMALINK

On August 3, 2006, then-Senator Barack Obama voted to make the current tax treatment of 529 college savings plans permanent.

President Obama’s recently proposed tax plan, however, reverses this vote on 529 plans.

The vote on H.R. 4 — the Pension Protection Act of 2006 — took place in the second session of the 109th Congress, vote #230.

H.R. 4 made permanent the 529 plan expansion in the otherwise temporary 2001 Bush tax cut package (the Economic Growth and Tax Relief Reconciliation Act of 2001 — EGTRRA). The vote for H.R. 4 enshrined into permanent law the current tax-free growth of these college savings plans if used for tuition and fees. The 529 provision was in Section 1304 of the legislation.

The Obama administration has now proposed raising taxes on 529 plans, reversing the vote Senator Obama took in 2006. The administration now criticizes 529 plans as “upside down,” and “ineffective."

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Steve Jurvetson

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Jeffrey L. Mcdonald

He voted yes to the 529 plan when he was in the Senate and he didn't know he would become president. It was a good plan then, he had 2 young girls and it was a good way to save for college, just like the millions of other Americans who put money in the plan also. Now that he's president he no longer has to worry about money because the American people will pay for his kids to go to college. If that doesn't show his thought are only about his family not the families of will have to save or get student loans for their kids to go to college. So he's saying I got mine screw the rest of you. obama is such a liar he forgot that he voted yes to the 529 plan as a senator and now it's ok to end the plan. He's going to say you can still use the plan if you want to but it's going to be taxed. What sense would it do to use it when you can put money in a plan where you can draw intrest.Just one more hit on the lower and middle class.


Shocking...the man that also said marriage was between a man and a woman.

Common Sense

To this day I ask, "how in the world did this country elect Obama not once.....BUT TWICE?"

Delay of Water Settlements Needlessly Costing Taxpayers

Posted by Ryan Ellis on Saturday, January 24th, 2015, 9:38 PM PERMALINK

One of the main powers and responsibilities of Congress is to spend money. Often times this authority is abused and taxpayers end up burdened by the costs of wasteful spending on pet projects (earmarks) and needless programs that otherwise wouldn’t be approved. However, sometimes there are issues that are misrepresented.  Another responsibility of Congress is to finalize water rights settlements that have already been negotiated by Congress. This is an issue that that hasn’t gotten much attention but is costing taxpayers.  A Republican-controlled Congress may be able to move these settlements forward.

As Congress makes progress in taking care of these settlements, some may want to characterize these as earmarks.  While some have said these settlement agreements are tantamount to earmarks, that is not simply the case. The Taxpayers Protection Alliance (TPA) is fully aware of what constitutes an earmark in Congress and these are not even close. TPA has been exposing earmarks for years.  The latest expose of earmarks by TPA was the 293 earmarks hidden in the Defense appropriations bill worth more than $13 billion (click here for a full list).  The settlements reached by Congress regarding these water and land disputes are not earmarks and shouldn’t classified as such.

Indian water rights settlements are agreements that resolve certain legal claims that Native American tribes have with the United States government. The settlements that are entered into are ultimately agreed upon by Congress and various federal agencies with jurisdiction on these matters. The stated agreements “fulfill the federal government’s obligation to manage water resources held in trust on behalf of Native American tribes.”

The cost of this settlement process as opposed to the cost of protracted litigation is an easy choice for Congress and the other parties involved. During a hearing on this issue in March of 2012, former Sen. Daniel Akaka (D-Hawaii), then-Chairman of the Committee on Indian Affairs, noted in his opening remarks to the Committee that:

“Congress has approved over two-dozen water settlements in the past 35 years. Last Congress, we enacted legislation that settled the water rights for seven tribal nations. Collectively, these seven tribes spent nearly a century litigating their water rights in court before having their settlements approved by Congress. Can you imagine this? 

In determining water rights claims, a tribe and other stakeholders may pursue either litigation or negotiation. Negotiating to reach a settlement in Indian water rights claims is advantageous for all parties. It is cheaper, takes less time and is more flexible than litigation. Negotiations may also foster better working relationships between all parties. This can have positive outcomes for not only the tribes but for the surrounding non-Indian communities as well.”

Last year Congress passed, and President Obama signed, H.R.3716, the Pyramid Lake Piute Tribe – Fish Springs Settlement Act. This legislation brought to a close a long fought legal battle over water rights, and in the end spurred a new partnership that will economically benefit all parties involved at no cost to taxpayers.

Taxpayers shouldn’t be on the hook for additional costs due to the hold up of these agreements, and this is why the settlements reached should be allowed to proceed. Over the past few decades we have seen these types of settlements approved and move forward without delay, so there’s no reason to stop that progress now. Just one settlement being held up can add more legal costs paid for unnecessarily by taxpayers and also negatively impact the local parties involved who have done the hard work to come to a resolution that suits everyone.

TPA is always encouraged when Congress actually works together to get something done, because it happens so rarely. In this case, these are routine settlements that have been negotiated in good faith by all parties involved and there’s no need for further delay that leads to more costs for taxpayers simply under the guise of the false notion that they are earmarks. TPA will continue to look at this issue and press for fair and swift resolutions that reflect the spirit of the settlements as congress intends.

(This post originally appeared on the website of the Taxpayers Protection Alliance and is cross posted here with their permission).

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Governor Brian Sandoval Flip-Flops on Nevada Margins Tax

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Posted by Paul Blair on Friday, January 23rd, 2015, 4:21 PM PERMALINK

In his 2015 State of the State Address, Gov. Brian Sandoval (R-Nev.) called for the largest tax increase in Nevada history. At more than $1 billion over the next two years, Sandoval’s tax hike will fuel massive budget growth, increasing the budget from $6.6 billion to $7.3 billion. This is a significant departure from his rhetoric over last year’s massive margins tax hike ballot initiative.  

Last year, Sandoval had this to say: “All things being equal, we prefer to keep more of our earnings. That fact makes new taxes a tough sell. As such, the proponents of new taxes, like any good marketer, ignore what’s unpopular about the product. Instead, they point to the alleged benefits of the tax, rarely mentioning the costs.”

“The margins tax, if approved, will jeopardize Nevada’s recovery.”

His 2015 State of the State Address: “Improving our public education system must therefore begin with modernization, and modernization requires investment. 

…I am therefore proposing a broad-based solution that asks Nevada business to invest in our education system. 

…It's time we are honest with ourselves — these revenues are now a part of our comprehensive budget. I know this approach will cause debate. You will all find that there is no perfect solution."

Governor Sandoval’s 2015 budget includes the following tax increases:

  • Cigarette tax hike from 80 cents to $1.20 per pack
  • Slot machine tax hike
  • Mining industry payroll tax hike to 2 percent, above the traditional 1.17%
  • Business license tax imposed based on gross revenue; the margins tax
  • Making permanent $580 million in “temporary” tax hikes including:
    • Payroll taxes
      • A .35% sales tax hike
      • A $100 increase in the business license tax


We rate this a full flip-flop.

Why was Sandoval opposed to tax increases in 2014 and in 2015 pushing the largest tax hike in state history? Was it because 2014 was a gubernatorial and legislative election year? Why is he doing what he accused proponents of tax increases in 2014 of doing, focusing on the alleged benefits, instead of the costs to businesses?

$882 million of Sandoval’s proposed spending increases are aimed at education, the same supposed target of the “Education Initiative” tax hike that voters rejected by a margin of 79%-21% last year.

Businesses and labor unions opposed the tax and for good reason. Gross receipts taxes hit thousands of small businesses and major employers without regard for their ability to pay, as the taxes are based on revenue, not profits. 

That’s precisely why only five states have gross receipts-esque taxes and one of them, Texas, may eliminate it this year. These taxes are extremely damaging to the economy. By creating complicated tax calculations, the administrative and compliance costs are massive. The governor’s proposal includes 30 such categories.

Republicans shouldn’t be in the business of complicating the tax code in order to placate teachers unions. This is especially true in the aftermath of a crushing defeat of the Education Initiative and in light of Republicans being swept into power for the first time in over 80 years. 

Nevadans should contact Governor Brian Sandoval at 775-684-5670 and ask him why he flip-flopped on the massive margins tax. This is a tax hike that Nevadans can’t afford. 

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Ron Kazmierczak

becoming like NY& cali someone has to pay for all those illegals and expansion that generates more cash to waste LOL i never seen such backwards thinking as this i know this will hurt big it will b a sucking sound

Rex Smith

gaming taxes used to support the whole state what happened ?

Will Obama's 529 Plan Tax Hike Also Hit Disabled Kids?

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Posted by Ryan Ellis on Friday, January 23rd, 2015, 11:37 AM PERMALINK

On top of everything else, it appears that President Obama’s 529 plan tax hike might also fall on–of all things–disabled children and the parents who save for them.

In the most embarrassing of all possible starts to 2015, President Obama’s administration appears to be in full retreat on their proposal to tax middle class college savings plans (known as “529 accounts“).  The final death blow to this reckless and politically suicidal assault on the American Dream came out yesterday when it was revealed by the Wall Street Journal that the Obamas made a $240,000 contribution to the 529 plans of their daughters back in 2007.  There’s nothing wrong with that, of course, but it is a tad hypocritical for Obama to want to deny the middle class their opportunity to save for their own children’s education, be the contributions ever so modest. Even the New York Times, of all outlets, is turning tail.

It can get even worse.

Back in December 2014, a little more than one month ago, President Obama signed into law the “Achieving a Better Life Experience (ABLE) Act,” which sailed through Congress.  It creates a brand new kind of 529 plan.  Traditional 529 plans are all about saving for college.  An ABLE account will be about saving for kids who will likely never get a “normal” college experience, or anything close to it.  Qualified expenses include things like disability education, housing, transportation, employment support, health and wellness, financial/administrative/legal costs, and even funeral fees.

Like other 529 plans, ABLE account contributions are made after-tax.  The money grows tax-free.  Provided the contributions and earnings are used for qualified disability expenses, withdrawals are tax-free.  They very much resemble Roth IRAs, except the savings intention here is disability costs and not retirement.

The Administration’s plan calls for all earnings distributions on 529 plans to be subject to ordinary income taxation, at rates as high as 39.6 percent.  Will this include the new type of 529 plan signed into law by President Obama just a month ago, the ABLE account?

If the Obama tax hike plan sweeps in ABLE accounts, they may never actually achieve liftoff.  Conventional 529 plans would “dry up” and die off, according to Joe Hurley of the 529 portal website savingforcollege.com. “States that are not able to retain sufficient assets in their 529 plans will have a difficult time keeping their plans open,” Hurley added.

Since ABLE accounts are only a little over a month old, none have actually been established yet by 529 sponsors (i.e., states).  If the tax treatment were to change, there would be no market for ABLE accounts and no incentive to invest resources in rolling them out for parents of disabled kids.

Even if ABLE accounts are excluded from the rest of the president’s tax hike plans for 529s, it would still kill them off.  Since ABLE accounts will only be offered in conjunction with the larger 529 accounts, the death of the latter necessarily means the stillbirth of the former.  It’s like shooting the horse and expecting the cowboy to keep riding.

Was all this done on purpose?  Did anyone in the Obama Administration raise their hand and say “wait, didn’t we just sign a 529 expansion–for disabled children–just before Christmas?”

Who knows?  My guess is “no.”  Considering how ill-conceived and botched this entire fiasco has been, crediting officials with thinking this deeply about the topic is a bridge too far.

Assuming that this 529 plan tax hike (including de facto ABLE account preemptive repeal) remains in the president’s budget, it will be fully fleshed out in the Treasury Department’s post-budget “Blue Book,” where all stupid tax ideas slouch toward Bethlehem, waiting to be born.  Only then will we find out for sure if some technocratic nimrods at the White House accidentally decided to tax the tax-free savings accounts of disabled children, or whether they were even more reality-addled and did it on purpose.

But can someone in the press please ask them between now and then?

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Joe Crimmings

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