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

Share on Facebook
Tweet this Story
Pin this Image

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?

Photo Credit: 
Joe Crimmings

More from Americans for Tax Reform

Top Comments


ATR Supports H.R. 310, the Taxpayer Transparency Act


Posted by Ryan Ellis on Thursday, January 22nd, 2015, 4:40 PM PERMALINK


Americans for Tax Reform supports the Taxpayer Transparency Act (H.R.310) and urges members of Congress to support this bill. The Taxpayer Transparency Act makes sure that the government is held accountable for spending taxpayer dollars for political purposes. This will foster increased transparency and government accountability, especially for government spending that promotes unpopular and broken laws.

Government accountability and transparency are nonpartisan ideals and requiring the government to disclose that their advertisements are being paid for by the taxpayers will let Americans know that they are the ones footing the bill.
 

More from Americans for Tax Reform

Top Comments

Rednecksrule

How do you feel about using taxpayer money to implement Obama's amnesty Norquist you tool? You favor Obama's amnesty don't you? You have no problem with taxpayers footing the bill for open door immigration jag off...


ATR Applauds South Carolina Gov. Nikki Haley’s Call for Income Tax Relief

Share on Facebook
Tweet this Story
Pin this Image

Posted by Patrick Gleason on Thursday, January 22nd, 2015, 3:39 PM PERMALINK


Great news for South Carolina taxpayers. In last night’s State of the State Address, Gov. Nikki Haley proposed reducing the state’s top marginal income tax rate from 7.0 percent to 5.0 percent, a 30 percent reduction.

This income tax reduction, which result in more disposable income for individuals, families, and small businesses across the Palmetto State, will be a boon to the state economy. It’s also a much needed reform in light of the competitive tax codes had by neighboring states.

As Gov. Haley pointed out in her speech:

“Some southeastern and southwestern states – Tennessee, Florida, and Texas – have no income tax at all.  Georgia’s tax is a full percent lower than ours, and just last year North Carolina cut theirs by two full points, to below even that…In that competitive environment, our state’s 7% income tax rate stands out and puts us at a disadvantage. In order to keep the ball rolling in our economy, we must bring down our income tax.”

South Carolina’s status as a Right-to-Work state that frees workers from coerced unionization makes it an attractive location for new investment, business relocation, and the subsequent job creation that follows. However, the state’s tax code relative to its neighbors and other states across the country are holding it back from reaching its full economic potential. Gov. Haley is smart to propose doing away with that hindrance. Gov. Haley’s effort to reduce the income tax is supported by a wealth of research.

Tax Foundation economist William McBride reviewed academic literature going back three decades and found, "While there are a variety of methods and data sources, the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions and monetary policy."

In McBride's survey of 26 studies, dating to 1983, he found "all but three of those studies, and every study in the last 15 years, find a negative effect of taxes on growth."

John Hood, former president of the John Locke Foundation, found that keeping state and local tax and regulatory burdens as low as possible fosters economic growth, when he analyzed 681 peer-reviewed academic journal articles going back to 1990.

"Most studies find," Hood stated, "that lower levels of taxes and spending, less-intrusive regulation correlate with stronger economic performance."

“Gov. Nikki Haley has proven time and again to be a tremendous defender of taxpayers,” said Grover Norquist, president of Americans for Tax Reform. “This latest proposal demonstrates that she recognizes the need for pro-growth, rate-reducing tax reform. It also stands in stark contrast to President Obama, who used his recent address to call for hundreds of billions in higher taxes. Once again, Gov. Haley shows us that the best policy reforms are coming out of the states.” 

Photo Credit: 
Gage Skidmore

More from Americans for Tax Reform

Top Comments

Mark Desser

NO BS. Progressive in the Right direction. I could get used to being a Progressive.

test

BS


Obamas Make Jumbo 529 Contribution While Pushing Repeal for Everyone Else

Share on Facebook
Tweet this Story
Pin this Image

Posted by Ryan Ellis on Thursday, January 22nd, 2015, 1:46 PM PERMALINK


President Obama proposed this week to tax the earnings on new contributions to “Section 529″ college savings plans. These plans work like Roth IRAs for college–you put in after-tax money, the money grows tax-free, and withdrawals are tax-free if used to pay for tuition and fees.

Obama wants the earnings on these plans to face ordinary income tax, at rates as high as 39.6 percent federally. 529 expert Joe Hurley correctly predicts that taxing 529 plans this way will result in their effective repeal, as new contributions in will “dry up” overnight.

The tsunami of popular outrage against the Obama proposal can be explained by seeing that this tax increase is really an assault on the American Dream.

But just your American Dream–not the Obamas’.

You see, back in 2007, Barack and Michelle Obama made a stunning $240,000 contribution to the 529 plans of their two daughters. There’s a special provision in 529 tax rules that allow for a “jumbo” contribution in exchange for not gifting any more money to your kids for the next five years. The Obamas (wisely) took advantage of this–you can see the actual tax form reporting here.

This is odd, considering some of the nasty things the White House has said about 529 plans in recent days. Administration officials have called 529 plans “inefficient,” that 80% of the benefits accrue to those making more than $250,000 per year, and that 529 plans should effectively be repealed in order to plus up an education tax credit. Obama Administration mouthpiece Slate went so far as to call de facto 529 repeal “a great idea.

In fact, the College Savings Foundation–which knows a thing or two about the 529 industry–says that 70% of families which own a 529 plan make less than $150,000 per year, and almost 95% of families make less than $250,000 per year (note that this is the Obama Administration’s preferred dividing line to mark off the “middle class”). The average account balance in these 12 million 529 plans is just under $21,000.

So which one is it?  Are 529 plans an evil distortion in the tax code? If so, why did the Obamas plow nearly a quarter of a million dollars in them back in 2007? And why does Obama want to effectively repeal 529s (there would be no reason to contribute without the tax-free growth) for middle class families today?

The Obamas have already gotten their full tax advantage from 529 plans. Under his plan, they would get to keep all the tax-free growth their quarter-million dollar contribution will yield. But they want to deny that to others not so fortunate, to middle class families struggling to save for college.

If that sounds familiar, it should. Back in 2009, President Obama tried to kill school scholarships for some 1,700 low income elementary school students in the District of Columbia. This was at the same time as he sent his daughters–the ones who benefit from the Obamas’ 529 plan contributions–to the uber-pricey Sidwell Friends School in town. All this was done to appease the teachers’ unions, who largely dictate education policy to Democrats.

The story is the same–only the best for the Obama clan and his friends, but everyone else can eat cake.

Photo Credit: 
Justin Sloan

Top Comments

WSE

Makes perfect sense to me...consistent with their strategy to make as many as possible dependent on the federal government for their student loans

CapitalistPig

Lets not forget the cutting of Pell grants from 18 semesters to 12. effectively cutting off anybody that needed help obtaining their Masters degrees.


The Grover Norquist Show: Obama Takes Aim at 529 College Savings Plan

Share on Facebook
Tweet this Story
Pin this Image

Posted by Alexander Hendrie on Thursday, January 22nd, 2015, 1:41 PM PERMALINK


During his State of the Union address, President Obama proposed taxing 529 college savings plan. 529 tax plans work by allowing families to deposit after tax funds into an account that then accumulates interest. When funds are withdrawn from the account to pay for college they are tax free.

Almost 12 million families rely on 529 plans to help pay for the costs of college but Obama’s proposal will tax these plans like ordinary income and destroy the viability of this widely used account.

ATR’s Grover Norquist and Ryan Ellis sit down to discuss how this new proposal will hurt the ability of middle class families to invest in their children’s college education.

 

 

More from Americans for Tax Reform

Top Comments


Grover Norquist Discusses the Great Cost of the “Great Society”


Posted by Dorothy Jetter on Wednesday, January 21st, 2015, 5:29 PM PERMALINK


Today Americans for Tax Reform President, Grover Norquist spoke at an event at the Council on Foreign Relations titled, “The Great Society at 50: Assessing the Legacy, Evaluating the Future.”  Norquist emphasized the importance of fiscal prudence in place of wasteful federal programs that promise taxpayers things they do not and cannot deliver.

While the New Deal and Great Society Eras are often referred to as successful periods of economic recovery in our history, the American people are still paying the price for entitlement programs established during these times. 

In fact, they represent half of all federal spending today and a large portion of every American’s income. Norquist pointed out that annually:

“The federal government spends 20% of what Americans make.”

The cost of President Lyndon Johnson’s so-called “Great Society,” is well, enormously great.  He continued:

“We have spent $20 trillion, inflation adjusted dollars, since 1964 on welfare programs.  Seventeen percent of income in the United States comes from means tested welfare programs.”

The American people are seeing the negative impacts of tax increases and federal entitlements implemented half a century ago, today.  Looking towards the future, Norquist reasoned:

“The real challenge is we can’t afford this, now or in the future.  Social Security has $10.6 trillion in unfunded liability.  That doesn’t mean $10.6 trillion owed sometime, that’s the present value of unfunded liabilities that we have in Social Security alone. Medicare is somewhere between $28- $35 trillion in unfunded liabilities.”

You can watch the entire event above.

Photo Credit: 
Gage Skidmore

More from Americans for Tax Reform

Top Comments


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

Share on Facebook
Tweet this Story
Pin this Image

Posted by Ryan Ellis, John Kartch on Tuesday, January 20th, 2015, 11:56 AM PERMALINK


Tonight, in his State of the Union address, President Obama will propose a series of tax increases on the American people. One of these tax increases is indisputably an income tax hike on middle class families with children. 

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.

These accounts are commonly used by middle class families. There are about 12 million 529 accounts open today, and they have an average account balance of approximately $21,000. Most 529 plans permit monthly contributions as low as $25 per month.

This middle class income tax increase is a clear violation of President Obama's “firm pledge” against “any form of tax increase” on any family making less than $250,000. This promise to the American people is documented below:

Speaking in Dover, New Hampshire on Sept. 12, 2008, candidate Obama said:

“I can make a firm pledge. Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.” [Video]

During a nationally televised Vice-Presidential debate in St. Louis on Oct. 3, 2008, candidate Joe Biden said:

“No one making less than $250,000 under Barack Obama’s plan will see one single penny of their tax raised whether it’s their capital gains tax, their income tax, investment tax, any tax.” [Transcript]

In an address to a joint session of Congress on Feb. 24, 2009, President Obama restated the promise in forceful terms:

“If your family earns less than $250,000 a year, you will not see your taxes increased a single dime. I repeat: not one single dime.” [Transcript] [Video]

"Rather than raise taxes on middle class families trying to save for their children’s education, Obama should abolish the seven tax increases in Obamacare that directly hit middle-income Americans,” said Grover Norquist, president of Americans for Tax Reform.

Photo Credit: 
U.S. Embassy, Jakarta

Top Comments

sewhappy4me

So he's going to tax the people who actually saved to send their kids to college to provide free college to takers who never saved - makes perfect sense in Obamaland.

BustBlocker

He also gives Constitutional Rights to Illegal aliens.
No surprise here.

p3orion

Why not? He gives tax "refunds" to people who pay no taxes.


ATR Presents 2015 State of the Union Bingo


Posted by ATR on Monday, January 19th, 2015, 5:46 PM PERMALINK


Americans for Tax Reform once again presents a series of handy Bingo cards you may use to check off terms and phrases likely to be used during President Obama's State of the Union address on Tuesday.  

Print out all versions of the card and watch the speech with your friends, family, or book club: [BINGO Card I]  [BINGO Card II]  [BINGO Card III]

Official Terms and Definitions:

 

“Work together” = I will work together with my pen and phone.

 

“Infrastructure" or "Roads and Bridges” = Bullet trains to nowhere.


“Internet” = A dangerously under-regulated segment of the economy the FCC should start micromanaging.

 

"Investment” = Tax hikes.

 

“Balanced” = Tax hikes.

 

“Fair share” = Tax hikes.

 

"Inequality” = Tax hikes.


"1%” = How kids feel after a Michelle Obama school lunch.

 

"Children and Grandchildren” = The people picking up the tab.


“Energy” = What my administration expends to ensure the Keystone XL Pipeline is never built.

 

"I or Me” = Center of the known universe.

 

“Education” = Teachers union payoff.

 

“Regulation” = Thank you for not asking about the 300 coal plants that are doomed due to my EPA regs.

 

“Affordable” = Affordable only after a taxpayer-funded subsidy. But not really.

 

"Middle Class” =  Those who are the target of seven tax hikes in Obamacare.

 

"Recovery”  =  The weakest post-1960 recovery on record.

 

“Deficit” = The product of an overspending problem which I want to “fix” with tax hikes.

 

“Compromise” = You pay. I spend.

 

“Responsibility” = Don’t forget to send in your Obamacare 'Shared Responsibility Payment' to the IRS.

 

"Health Insurance” = If you like your plan, you can keep your plan. Oh, wait.

 

“Access” = Government mandates + more tax dollars.

 

"Special Interests” = Taxpayers.

 

“Jobs” = Where young adults used to spend their time instead of Mom and Dad’s basement.

 

“God bless America” =  Good luck filling out your Obamacare tax forms. 

 

More from Americans for Tax Reform

Top Comments


Chris Christie: “I will veto any more income tax increases that come before me.”

Share on Facebook
Tweet this Story
Pin this Image

Posted by Paul Blair on Monday, January 19th, 2015, 4:45 PM PERMALINK


In his 2015 State of State Address, Governor Chris Christie (R-N.J.) reiterated his strong opposition to tax hikes in New Jersey. Since taking office 5 years ago, Democrats have passed income and business tax hikes that Gov. Christie has vetoed five times. Despite the state’s massive overspending problem and bloated pension liabilities, Christie has remained steadfast in rejecting Democrat efforts to raise taxes as a Band-Aid for those issues.

In his Address before the legislature last week, Christie mentioned taxes 22 times. Here are a number of excerpts:

"Now, I know that many of you in this room believe that income tax increases are the way to go. So yes, sometimes we will simply have to disagree.

I have vetoed four income tax increases passed by this body. And make no mistake… I will veto any more income tax increases that come before me.”

He continued, “And I will do it for one simple reason — the higher our taxes are, the fewer people and businesses will come to New Jersey and the more who will consider leaving. Raising taxes is the old Trenton way, and it didn’t work.

…“We will not win the fight to keep and create good paying jobs for our middle class families in New Jersey unless we lower taxes.”

…“And we know that the policies of lower taxes and less intrusive government have created higher economic growth and better paying jobs for our middle class.

Governor Chris Christie’s rejection of tax increases forced the legislature to work with him to reform the government in a number of ways. In 2011, Christie signed bipartisan pension reform that reduced costs by more than $120 billion over the next thirty years. Unfortunately, New Jersey’s pension crisis is a long-term problem that is still underfunded by $90 billion. 94 percent of the year-over-year growth of the 2014-2015 budgets went to public employee pensions, health benefits, and debt service payments.

Christie made mention of pensions 10 times in his State of the State Address. 

"Now, of all the long-term challenges we face, one of the largest and most immediate is our obligation to provide pension and health benefits for state and local employees.

This is not just a New Jersey problem. This is a national problem.

States across the country are struggling to fund critical programs because pension and health costs are eating up taxpayer dollars.”

Governor Christie is absolutely right. The state’s largest two problems remain a bloated pension system and an uncompetitive tax code that is forcing thousands of families and businesses to flee to other states.  In calling on the legislature to work with him to address both, Governor Christie has demonstrated that he understands issues not only important to New Jersey, but to states and localities nationally. 

Photo Credit: 
New York Post

More from Americans for Tax Reform

Top Comments


Obama Calls for $320 Billion in New Taxes

Share on Facebook
Tweet this Story
Pin this Image

Posted by Ryan Ellis on Saturday, January 17th, 2015, 10:59 PM PERMALINK


On Saturday night the White House leaked the major tax hike details of the president's upcoming budget. The common theme is higher taxes on savings and investment, totaling $320 billion over the next ten years.

"Democrats are demanding, yet again, tax increases on America. This never ends. When it comes to tax hikes Democrats are like a teenage boy on a prom date: they keep asking the same question different ways but always to the same point," said Grover Norquist, president of Americans for Tax Reform.

Here are the major tax increases in the President's upcoming budget:

​1. Capital Gains Rate Hike: raises capital gains and dividends tax rate from 23.8% today (20% plus 3.8% Obamacare surtax) to 28% (including the Obamacare surtax).

The capital gains tax has not been that high since President Clinton signed a rate cut in 1997.  

It would represent a massive hike in the rate since Obama took office. When he was sworn in, the rate was 15%. He proposes to nearly double it to 28% in the twilight of his administration.

2. Stealth increase in the death tax rate from 40% to nearly 60%.

Under current law, when you inherit an asset your basis in the asset is the higher of the fair market value at the time of death or the decedent's original basis. Almost always, the fair market value is higher.

Under the Obama proposal, when you inherit an asset your basis will simply be the decedent's original basis.

Example: Dad buys a house for $10,000.  He dies and leaves it to you. The fair market value on the date of death is $100,000. You sell it for $120,000. Under current law, you have a capital gain of $20,000 (sales price of $120,000 less step up in basis of $100,000). Under the Obama plan, you have a capital gain of $110,000 (sales price of $120,000 less original basis of $10,000).

There are exemptions for most households, but this misses the larger point: the whole reason we have step up in basis is because we have a death tax. If you are going to hold an estate liable for tax, you can't then hold the estate liable for tax again when the inheritor sells it. This adds yet another redundant layer of tax on savings and investment. It's a huge tax hike on family farms and small businesses.  

It's like a second death tax (the first one has a top tax rate of 40% and a standard deduction of $5.3 million/$10.6 million for surviving spouses). Conceivably, an accumulated capital gain could face a 40% death tax levy and then a 28% capital gains tax on what is left. Do the math, and that's an integrated federal tax of just under 60% on inherited capital gains.

3. "Bank Tax"

A new 7 basis point (0.07%) tax on the liabilities (not assets) of the 100 or so U.S. firms with assets over $50 billion. This will obviously be passed along to these firms' customers and employees, since businesses don't pay taxes--people do.

4. Tax Increase on Families Saving for College

Under current law, 529 plans work like Roth IRAs: you put money in, and the money grows tax-free for college. Distributions are tax-free provided they are to pay for college.

Under the Obama plan, earnings growth in a 529 plan would no longer be tax-free. Instead, earnings would face taxation upon withdrawal, even if the withdrawal is to pay for college. This was the law prior to 2001.

5. Tax Increases in Retirement Plans and a New Employer Mandate

There would be a new cap in the amount one could accumulate in the aggregate in all IRA and 401(k) type accounts of $3.4 million. After that, you can't save any more new dollars. The idea is that this is enough to secure a $210,000 annual distribution in retirement, which the government apparently deems "enough" for a retiree.

In addition, all employers with more than 10 workers and who do not have a 401(k) type plan would be mandated to set up payroll deduction Traditional IRAs for their employees. Also, part-time workers would have to be covered under retirement plans if they have been working someplace long enough. These two things are a new kind of employer mandate from Obama.

Photo Credit: 
Jeff Glagowski

More from Americans for Tax Reform

Top Comments

JDsHandsomeSon

How else will we be able to feed, clothe, cure, house and educate the millions of illegals soon to arrive here in America? Those future democrat voters have to be cared for by someone and Obama's current supporters are already on welfare. We can't take anything away from them, can we?

Raymond A. Nelson Jr.

You're a special kind of stupid aren't you? Take your ass to Mexico, Guatemala, Yemen, Somalia, or Africa illegally and see if you receive a work permit, resident/work visa, SSnumber, welfare, drivers license, or a free birth certificate.

Daniel Zaborowski

I myself am a Polish immigrant who had no vote in the decision to come here and who benefited greatly from the Deferred Action Plan. I pay my taxes, I work a legal job, I take no welfare from anybody safe the deferred action (which, in turn, makes me a productive member of society). I go to school and pay from my own savings. Yet strangely, I can't help but agree with all the libertarian principles and would rather vote Republican than Democrat even though this can be detrimental to my status. I think Obama is a criminal who helped me only by acting unconstitutionally and would never want to see a president like him in the Oval Office. I don't want to be the guy who says "not all immigrants are bad" but I hope that I am but a tiny speck of a large ocean of immigrants that, given a chance, would NOT vote democrat because they understand the long-term repercussions of that decision.


hidden