WASHINGTON (AP) — The White House said Tuesday it is dropping a proposal to scale back the tax benefits of college savings plans amid a backlash from both Republicans and Democrats.
President Barack Obama made the proposal last week as part of his State of the Union address. It was part of Obama's plan to consolidate and simplify a sometimes confusing array of tax breaks for college students.
Resistance from Congress was swift. Republicans publicly criticized the plan, and aides said House Democratic Leader Nancy Pelosi pushed the administration to drop it in a private conversation. Pelosi was joined by Rep. Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee.
A White House official said Tuesday the proposal had become a distraction.
"We proposed it because we thought it was a sensible approach, part of consolidating six programs to two and expanding and better targeting education tax relief for the middle class," said the White House official. "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."
The White House official and the aides spoke on condition of anonymity because they were not authorized to be quoted by name.
Obama's plan would reduce the tax benefits of future contributions to the popular 529 college savings plans. Current accounts would have been grandfathered, so existing funds could still grow and be withdrawn, tax-free.
The administration said all the additional tax revenue would have been used to help expand and make permanent a $2,500 tax credit that families can use for education expenses. Under current law, the tax credit is scheduled to expire at the end of 2017.
Earlier in the day, at a Capitol Hill news conference, House Speaker John Boehner, R-Ohio, called on Obama to abandon his plan for the college-savings account.
"Five twenty-nine plans help middle class families save for college. But now the president wants to tax those plans. It's another example of this outdated, top-down approach when our focus ought to be on providing opportunity for all Americans," Boehner told reporters. "So for the sake of middle class families, the president ought to withdraw this tax increase from his budget when he submits it soon."
Obama is scheduled to release his budget proposal Monday.
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