One of the less talked-about proposals President Obama offered this week was to take away the tax-exempt status of 529 college savings plans. These very popular plans allow parents to defer income - before it's taxed - into savings accounts to then be withdrawn, also tax-free, to use for qualified college expenses.
I'll dispense for the moment with the larger question of whether stuff like this represents a wise overall approach to the tax code (it doesn't) and just focus on the particular change Obama wants to make. That is: He wants to start taxing the withdrawals parents make from their 529 accounts when it's time to pay for college, so there would be far less reward for socking that money away in the first place. But the federal government would get to confiscate more capital from the private sector! The Democrat dream is fulfilled every time a dollar goes from private hands to politicians' hands.
But here's the kicker: The Obamas themselves have already put more than $240,000 into a 529 account. So they'll now have to pay the tax, right?
No, sillies. Obama only wants the government to tax withdrawals of funds deposited after the change is made. So those who have already made the deposits - like him - can still withdraw them tax-free. Nice, huh?
For all the chance this has of passing, Obama might as well have proposed to tax existing deposits too. He'd be taking very little risk, since the GOP Congress isn't about to take this or any of his other proposals seriously. Nor should they.
Now, I would prefer to see a simplified tax code with very low rates and no tax shelters whatsoever, so people don't feel the need to behave in special ways blessed by politicians to avoid paying taxes. Under a code like this, taxes would be so unoppressive that it would be no big deal to pay them and people wouldn't feel the need to avoid them in order to afford things like college.
But that's not the code we have now, and Obama is looking for every way he can find to change the code we have now so the government takes more and you keep less.
Unless your name is Barack Obama, that is.
