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THE 529 MICROCOSM: A REVEALING POLITICAL TRAIN WRECK WITH REGARD TO AN INEFFICIENT TAX BREAK

This train wreck over the White House's proposal and then retraction of a plan to cut back on wasteful tax benefits is instructive. This is a clear example of how much hot air there is in these fiscal debates. The benefit in question is the 529 college savings plan. This allows people to save as much money  as they want for college, without paying taxes on that money. The problem with this tax benefit is that is provides subsidy to people who woulds save in other forms anyway. So the White House proposed to tax withdrawals, while boosting better targeted measures to help lower-income households afford college. These efforts were quickly attacked by defenders of the 529s. The White house took everybody by surprise when an official said that this provision has become too much of a distraction and that they were not going to ask congress to pass it. This 529 rollback was going raise close to $1 billion over 10 years, it is hard to think that we are poised for a push on tax reform.