Tom Maguire:
Ryan Ellis, contributing at Forbes, notes a predictably bizarre proposed Obama tax increase:
Obama’s New State Of The Union Tax Hike On Middle Class 529 College Savers
One tax hike in particular was very odd, since it’s aimed almost exclusively at middle class families with kids–the exact demographic the goodies in the tax plan is targeting.
The levy in question would increase taxes on college savings accounts known as “529 plans” (after their section in the Internal Revenue Code). By definition, these accounts are really only used by middle class families. Poorer households don’t have the extra income to save (and even if they have a little, there are much higher priorities like retirement or saving for a home). Very wealthy families might use 529 plans, but it’s far more likely that they have complex trust arrangements set up for their children.
According to the Investment Company Institute (the trade association for the mutual fund industry), there was $245 billion accumulated in 529 plans in 2014. With just south of 12 million accounts open, that means there’s an average balance of about $21,000 in these plans. This is not a mechanism for rich Democrats like the Kennedys or the Gates to shelter wealth.
The tax hike in question – currently, interest, dividends and capital gains from invested assets are not subject to taxes even when withdrawn. Under Obama’s proposal, the plan assets can grow tax-deferred but atre subject to taxation upon withdrawal.
As to the notion that plan investors are “middle-class”, well, yes but…
A GAO study from December 2012 suggests that these plan investors were basically too rich, too well educated and too white to be deserving of any special treatment from Obama. How rich?
Families with 529 plans or Coverdells typically had much more wealth than families without these accounts, according to our analysis of SCF data. Based on our analysis of the 2010 SCF, we estimate that the median financial asset value for families with 529 plans or Coverdells was about $413,500, which is about twenty-five times the median financial asset value for families without 529 plans or Coverdells (about $15,400).
For example, families with 529 plans or Coverdells had more retirement assets than other families. Of families with 529 plans or Coverdells, about 94 percent had retirement assets, such as those in 401(k) accounts or traditional pensions. In contrast, approximately 49 percent of families without 529 plans or Coverdells had these retirement assets. Further, the median value of retirement assets was much greater for those with 529 plans or Coverdells. Specifically, the median value in retirement accounts was about $213,600 for families with 529 plans or Coverdells, while the median value for families without 529 plans or Coverdells was about $40,300. A larger share of families with 529 plans or Coverdells (27 percent) also believed they will have more than enough retirement income from pensions and Social Security to maintain current living standards than the share of families without 529 plans or Coverdells (16 percent), which may put them in a better position to save for college.
$400,000 in retirement savings? Obama’s agent will make more than that on Barack’s big book deal when he finally leaves office. My goodness, Sasha and Malia’s agent may make that much.
And income?
Further, the median income of families with 529 plans or Coverdells was about three times the median income of families without these accounts. Specifically, families with 529 plans or Coverdells had median incomes of about $142,400 per year compared to $45,100 for other families.
A full $142,000 per annum? Break out the private jets! Folks with long memories will remember candidate Obama pledging not to raise taxes on families earnng less than $250K, but we are long past the sell-by date with that one.
And I mentioned “too white”. For whatever reason, this was a key point in the study:
You didn’t think he was going to raise taxes on wealth Democrat cronies did you?