In a rare sign of sensitivity to public opinion, the White House decided to drop its proposal to tax 529 college savings plans after a bipartisan and media uproar. The Post reports:
White House officials said the backlash against the president’s plan became “such a distraction” that it was best to drop the proposal, which would have removed the ability of families to withdraw money tax-free from the savings plans, known as 529s.
The administration had tried to frame the elimination of the tax break as a way to redirect more money to middle-class families, arguing that the savings plans were being used disproportionately by wealthy families.
But the proposal proved to be a serious political miscalculation. With more than $1 trillion of outstanding student debt in this country, the 529 plan has become one of the best tools for families to save for college. About 12 million American families rely on the accounts.
One can argue that the media were especially critical since many reporters fall into the category of parents who utilize the plans. (We’re not rich, so why is he coming after us!?) But the irony here is that plenty of Obama policies ostensibly aimed at helping the working and middle class actually inflict economic pain on those who certainly don’t consider themselves “rich.” There is the tax/fine for not buying Obamacare-approved health insurance. There is the delay on the Keystone XL pipeline, a sop to elite green activists at the expense of workers who would find jobs directly or indirectly from the pipeline’s construction. (But then, most reporters already have health care and don’t work in jobs created by the pipeline.)
What is interesting is that the administration couldn’t save itself by arguing that most of the pain would fall on richer Americans. In fact, voters don’t much care about soaking the rich; what they do care about is when the government socks it to people like themselves who don’t see themselves as rich at all.
Americans for Tax Reform previously listed two more Obamacare provisions that directly hurt the middle class:
The 30 – 35 million Americans who use a pre-tax Flexible Spending Account (FSA) at work to pay for their family’s basic medical needs face a new Obamacare cap of $2,500. This will squeeze $13 billion of tax money from Americans over the next ten years. (Before Obamacare, the accounts were unlimited under federal law, though employers were allowed to set a cap.) Now, a parent looking to sock away extra money to pay for braces will find themselves quickly hitting this new cap, meaning they would have to pony up some or all of the cost with after-tax dollars.
Needless to say, this tax will especially impact middle class families.
There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children. Nationwide there are several million families with special needs children and many of them use FSAs to pay for special needs education. Tuition rates at special needs schools can run thousands of dollars per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. This Obamacare tax increase will limit the options available to these families.
Before Obamacare, Americans facing high medical expenses were allowed a deduction to the extent that those expenses exceeded 7.5 percent of adjusted gross income (AGI). Obamacare now imposes a threshold of 10 percent of AGI. Therefore, Obamacare not only makes it more difficult to claim this deduction, it widens the net of taxable income. According to the IRS, approximately 10 million families take advantage of this tax deduction each year. Almost all are middle class: The average taxpayer claiming this deduction earned just over $53,000 annually. ATR estimates that the average income tax increase for the average family claiming this tax benefit will be $200 – $400 per year.
The lesson here for conservatives (aside from finding issues that raise the ire of the media) is simple: Highlight and monetize the damage Obama’s policies do to non-rich Americans. The damage may be in the form of higher taxes, lost jobs, more expensive education or higher energy costs. The argument is most potent where you can zero in on the cost per family or per person (as opposed to an aggregate figure in the millions or billions that makes one’s eyes glaze over). Where it is not easy to attach a dollar limit (e.g. the pain from disallowing school choice and forcing children to stay in subpar schools) the power of anecdotal evidence can be effective. That means humanizing the face of those adversely affected (the single mom making $50,000 a year, for example).
It is all well and good to talk about “economic freedom,” but that’s not an argument that doomed the 529 plans. If Republicans are going to sell their own agenda and discredit the liberal welfare state, the single best argument remains: Democrats’ ideas hurt people while ours help people. That, of course, requires that the GOP have ideas that help non-rich people. This is all the more reason for it to propound an agenda with concrete ideas that help those who consider themselves middle class, a very large segment of voters. (As Peter Wehner has explained,”People often think of the middle class in terms of income, and the Pew Research Center defines the core of the middle class as households with incomes ranging from $39,418 to $118,255 in 2011 dollars. But the broad self-definition suggested by the Heartland Monitor Poll is more telling and more useful, and it gets at what we in this book mean by the term: The middle class refers to Americans who do not consider themselves poor or rich, and who can imagine their fortunes turning either way. It is in effect the broad base of the country—where most families are. The middle class is America’s center of gravity.”)
Every policy choice should be assessed through that lens, be it an increase in the Earned Income Tax Credit (to help the working poor who nevertheless consider themselves “middle class”); expanding the child tax credit, dependent exemption and child care deduction for middle-class families; extending college aid to trade and two-year institutions (where a large chunk of middle-class kids get educated) or making health care actually more affordable. If the GOP sticks to that perspective, it should do very well — and so should the bulk of Americans who have been squeezed, economically destabilized and inconvenienced to their wit’s end for a decade or more.