The Obama administration has decided to scrap a plan to tax 529 college savings plan withdrawals.
A White House official called the proposed change a
"distraction" and said there are plenty of other ways to raise revenue
as part of their budget.
According to a source familiar with the matter, in addition to GOP complaints, House Minority Leader Nancy Pelosi had pressed Obama to drop the 529 plan.
Read MoreObama's middle class dilemma on 529s
Obama had proposed raising $1 billion over 10
years by taxing capital gains realized in withdrawals from 529 college
savings accounts. The White House cited surveys showing that 70 percent
of the assets in such accounts are held by families earning more than
$200,000 per year, and noted that higher-income families benefit most
from the current tax exemption for such gains.
In an aim to help the middle class, the White House
proposal would then have made permanent the American Opportunity Tax
Credit, which provides up to $2,500 per year for families with incomes
up to $180,000. It would extend that credit, which is refundable
(distributed as a government check) for some families who don't owe
federal income taxes, to new categories of students such as those
attending classes part time.
There was considerable political debate over whether this plan would in fact help or hurt the middle class.
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