THE DAILY SIGNAL: Obama Proposes Eliminating Tax Cut Designed to Help Families Save for College

Career College Central Summary:

  • The Obama administration will soon propose raising taxes on middle-income families struggling to save for college–at a time when college costs are higher than they’ve ever been.
  • For years, families have been using 529 college savings accounts. Once you invest after-tax dollars in these accounts, the money grows tax-free and you can withdraw the initial capital and the interest acquired without facing federal tax penalties if you use the money for education expenses.
  • But now President Obama wants to tax the money made from those investments–a move that the New York Times called “a radical change” that would “discourage savers from using the accounts because the withdrawals would be taxed as ordinary income.”
  • Under Obama’s proposal, if families withdrew money that had been earned from investments from these accounts for college expenses, they would now have to pay taxes on that income.
  • Some have already pointed out that the proposal could also reduce the amount of federal financial aid for which a student is eligible, since that newly taxable income would be recognized by the Internal Revenue Service.
  • The administration’s policies are creating disincentives for those who save for college while advancing policies in which federal government directs college spending, lending and handouts.
  • At a time when college tuition is more expensive than ever, we should be encouraging families to save – and should certainly not be penalizing families in favor of Uncle Sam stepping in to provide things like “free” community college and student loan “forgiveness,” as the administration has proposed.
  • Financing the administration’s push for “free” community college, announced earlier this month, appears to be the impetus for the proposal to tax family savings. The money acquired via taxing the 529 accounts earnings will be used to offset the costs of giving two years of “free” community college to everyone.

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