White House defends decision to ditch college tax proposal

The White House said Wednesday it believes that President Obama's unpopular proposal to tax college savings accounts makes sense as part of a broader education plan.

The decision to jettison the proposal, which had come under criticism from Republicans and Democrats as a middle-class tax hike, was made because the issue had become a “distraction” lowering the odds that Obama’s broader education plan would gain traction, the White House said.

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“He didn't want this to be a stumbling block that would jeopardize the rest of the package,” White House spokesman Eric Schultz said.

Schultz stressed that the administration would have only implemented the taxes on withdrawals from college savings accounts as part of a $50 billion program that would have provided tax breaks to middle-class families and students.

But the White House's insistence that it still believed the savings plans should be taxed is likely to give Republicans — who have seized on the issue in recent days — additional ammunition. 

Compounding that messaging problem, Schultz said the proposal would remain in written copies of the president's budget proposal, to be released Monday, because it had already been sent to the printer.

And critics of the White House have noted that Obama voted to make the college savings plans permanent during his time in the Senate and wrote favorably about them in one of his books.

Schultz dismissed questions on whether the president had flip-flopped, saying Obama had made clear that his “north star” was making college more affordable for the middle class.

Still, Republicans have seized on the president's reversal to suggest that he should change course on other policy prescriptions.

“I’m glad President Obama has decided to listen to the American people and withdraw his tax hike on college savings. This tax would have hurt middle-class families already struggling to get ahead,” Speaker John Boehner (R-Ohio) said in a statement. 

“This is also an opportunity for the president to reconsider his threats to veto common-sense jobs bills, like the Keystone XL pipeline and restoring the 40-hour workweek. Together, by listening to the people, we can get our economy moving, create jobs, and help give our children the best opportunities to succeed.”

Schultz indicated such a reversal was unlikely, and said the decision on 529 plans was made because “this did not enjoy the support of members of the House and Senate” — including Democratic allies. Minority Leader Nancy Pelosi (D-Calif.) personally lobbied Obama to abandon the proposal while they flew together aboard Air Force One during their recent trip to India and Saudi Arabia.

He also said that the proposal was a "relatively inexpensive and small piece of business for us," drawing an implicit contrast with big-ticket policy disagreements with Republicans.