What Was Buried In the State Of The Union Address

Buried in the waft of proposals surrounding the State of the Union was an important proposal to change the tax code:

That is the essence of the president’s proposal.  He’d curb the use of 529s, which disproportionately benefit upper-income families, to finance expansion of the American Opportunity Tax Credit, which is available only to families with pretax incomes up to $180,000.  Families that don’t make enough money to owe income taxes can get up to $1,000 in cash from the AOTC today; the president would increase that to $1,500, an obvious winner for lower-income families.  He’d also extend the benefit to part-time students and allow students to take it for up to five years (instead of the current four).

Now the tax credit isn’t a perfect substitute for the 529 tax break, but the president’s plan for 529s piece can’t be viewed in isolation. He means to move tax subsidies for college savings down the income ladder. “The plan overall would do MORE to help both middle-class and lower-income families afford college,” Bob Greenstein of the Center on Budget and Policy Priorities says in a recent defense of the president’s proposals.

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