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By Michael T. Lahti
Tax Notes Today reported that President Obama has backed off a recent proposal to tax any earnings accumulated on new contributions to section 529 qualified tuition plans. The controversial proposal was part of the broader tax plan that the White House outlined before Obama delivered his State of the Union address on January 20. Under the president's original plan, several education saving tax incentives, including the very popular 529 plans enacted in 2001 and tax incentives for Coverdell education plans, would have been repealed or redirected into a new, expanded version of the American opportunity tax credit.
This proposal drew swift backlash from lawmakers on both the right and the left, and since, the president has apparently decided to leave the 529 proposal out of his fiscal 2016 budget plan, scheduled for release February 2. "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 that has bipartisan support, as well as the President's broader package of tax relief for child care and working families," The New York Times quoted a White House official as saying on January 27.