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President Barack Obama backed down from a proposal to scale back the tax benefits of certain college savings plans.
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(CNN)The
White House is giving up on a costly fight with Congress over the Obama
administration's increasingly unpopular proposal to effectively end 529
college savings plans.
A White
House official confirmed the move on Tuesday as fierce opposition to the
provision was building in Congress, even among fellow Democrats.
"Given
it has become such a distraction, we're not going to ask Congress to
pass the 529 provision so that they can instead focus on delivering a
larger package of education tax relief," the official said.
Also
known as "qualified tuition programs," 529 college savings plans are
typically offered by the states and allow holders to save money and
withdraw it tax-free, as long as the proceeds are used towards approved
college costs -- typically tuition, fees, room, board and other required
supplies. Another kind of 529, prepaid tuition plans, let savers prepay
for future tuition and lock in current prices, but they typically do
not cover other expenses.
The reversal
was a clear signal the White House had underestimated the popularity of
the college savings plans and the backlash any proposal to end the
program would cause. Republicans said the idea, floated as part of the
Obama administration's upcoming budget plan, contradicted President
Barack Obama's recent State of the Union theme of "middle class
economics."
"It's another example of
his outdated top-down approach when our focus ought to be on providing
opportunity for all Americans," House Speaker John Boehner said on
Tuesday.
Maine Sen. Susan Collins, a moderate Republican, said the plan never made sense.
"It
would have led to more student loan debt and undermined the very values
that we should be promoting," she said in a statement.
The
political damage on Capitol Hill was so clear to House Minority Leader
Nancy Pelosi that she lobbied senior administration officials to drop
the proposal even as she was flying on Air Force One with the President
from India to Saudi Arabia, a source familiar with the White House
decision said.
It is unclear how much
effort the White House was ever willing to muster to push its 529 plan.
There was no mention of the proposal in the President's State of the
Union speech.
"We need a tax code that
truly helps working Americans trying to get a leg up in the new economy,
and we can achieve that together," Obama said broadly about his
education plans.
A White House official
said the administration can still more than pay for its education
proposals, even without the 529 provision, based on savings realized by
closing the so-called "trust fund loophole" for wealthier Americans.
A White House official said the administration remains committed to other portions of its education tax reform plan.
"The
529 provision is a very small component of the President's overall plan
to deliver $50 billion in education tax cuts for middle class
families," the official said. "We proposed it because we thought it was a
sensible approach, part of consolidating six programs to two and
expanding and better targeting education tax relief for the middle
class."
The White House reversal on the 529 proposal was first reported by The New York Times.
Late Tuesday, Boehner welcomed the White House decision.
"I'm
glad President Obama has decided to listen to the American people and
withdraw his tax hike on college savings. This tax would have hurt
middle-class families already struggling to get ahead," Boehner said in a
statement.
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