Obama's 180 on 529 Plans Explained Here

Obama's 180 on 529 Plans Explained Here
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President Obama’s most recent job approval ratings may help explain why he decided so swiftly that reducing the tax benefits of a popular college savings plan – a proposal he’d made earlier this month – had become an unwanted “distraction” and should be reeled back.

Obama’s job approval rating in the wake of his Jan. 20 State of the Union address rose to 50 percent – his best report card since the summer of 2013 – according to the Gallup Organization. Men and women, all political parties and age categories, and whites and Hispanics gave him higher marks. His numbers also rose among everyone in middle-income and lower-income demographics, and particularly among those earning less than $24,000 a year.

But there was one prominent exception: his ratings fell by 3 points among everyone who said their incomes topped $90,000, a broad income category that covers upper-income Americans as well as many families who consider themselves “middle class” based on costs of living in their communities and overall household expenses. Recent surveys indicate that many high-earner “middle-class” families struggle to afford college tuition costs, along with families of lesser means who qualify for assistance.

In his speech, Obama said he wanted to close tax loopholes and make the wealthy pay their “fair share,” including higher capital gains taxes and new taxes on inherited family trusts. His proposals -- including a more restricted federal menu of tax incentives aimed at helping middle-income families save for college -- would generate $320 billion in revenues over a decade to offset the costs of a middle-class economic agenda that includes an expansion of the child care tax credit, free community college tuition for two years, and a $500 tax credit for families in which both spouses work.

Because three-fourths of Americans at all income levels identify themselves as middle class, according to Gallup, Obama’s much publicized proposal to restrict the tax benefits of 529 college savings plans may have contributed to the drop in job approval observed this month among families with incomes of $90,000 and higher.

The president and his team are elated to see his job approval numbers climb after the midterm elections, reflecting Americans’ renewed optimism about the economy, among other factors Gallup and other polling organizations describe as complex. Trying to keep the president’s standing at 50 percent or higher is a White House ambition in the second term because it lends Obama political running room to challenge opponents and appeal to the public.

Some of those middle-class families the president embraced in his State of the Union speech joined GOP critics over the weekend to object to Obama’s push to sweep away some of the tax advantages they found attractive in the 529 college savings plans.

The administration relied on a 2012 General Accounting Office study that found that about 1 in 10 families in 2010 had a 529 plan, and those with the savings investments had “about 25 times the median financial assets of those without” the accounts.

Public reactions after the White House announced Obama’s new tax proposals prior to his speech persuaded the president that many Americans saw things differently and believed he was undercutting middle-class benefits, not adding to them.

The president assessed the criticisms and personally decided to reverse course, the White House said Tuesday, because he recognized that “this particular piece was becoming a distraction. We didn't want that to jeopardize the broader plan,” spokesman Eric Schultz said.

Obama jettisoned his call to end a tax advantage used by 12 million Americans after observers – including some surprised Democratic lawmakers – said it undermined Democrats’ appeal to the middle class.

The now-renounced proposal still will appear in Obama’s fiscal 2016 budget blueprint, which he’ll send to Congress Feb. 2. The budget went to press before the president decided to stick with the tax benefits of 529 college savings plans, the White House said.

Obama on Thursday will announce that his budget will seek to undo the across-the-board spending restraint known as sequestration, which both parties enacted in 2013. Although some Republicans would like to release the Pentagon from those across-the-board cuts and increase defense spending, conservatives in Congress have rejected the president’s calls to eliminate sequestration or to raise taxes on the wealthy as a way to spend more on middle-class benefits.

 “We think [the budget] is going to reflect the fundamental values of building out the middle class to help sustain economic progress,” Schultz added. “For us, that includes making paychecks go further, making sure young people have the skills they need to succeed, and making sure higher education is more attainable for Americans across the board.”

Confronting political and media firestorms with rapid-response mea culpas – even when tempted to defend its positions – has become more common at the White House in recent months, especially when Obama decided some concessions cost little if they short-circuit the “distractions” of unwanted cable TV coverage and social media chatter.

For example, late last year, the president accepted a GOP suggestion to appoint a short-term White House coordinator for federal ebola response in the United States, after briefly resisting the idea. And this month the White House paused only 24 hours before publicly conceding the administration should have sent a high-level U.S. official to Paris to participate in a massive rally following terror attacks Jan. 7. White House Chief of Staff Denis McDonough later took responsibility for the erreur.

Alexis Simendinger covers the White House for RealClearPolitics. She can be reached at asimendinger@realclearpolitics.com.  Follow her on Twitter @ASimendinger.

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