The House voted overwhelmingly on Wednesday to expand the tax benefits offered by 529 college savings plans, strongly repudiating a recent effort by President Barack Obama to scale them back.
The measure passed by a 401-20 vote, with Democrats endorsing the measure by a ratio of eight-to-one. Democratic support is so decisive that, were Obama to veto the measure, the House could easily override the veto.
529 plans (named for a section of the tax code) allow Americans to avoid paying taxes on any investment gains, as long as withdrawn funds are used to pay for college education. Under the new measure approved Wednesday, fittingly named H.R. 529, these tax benefits would be expanded to include the purchase of computers. In addition, individuals would be allowed to take any money refunded by a college (due to a medical withdrawal, for instance) and return it to the 529 plan without paying any penalties.
The Congressional Budget Office estimates that this expansion will cost about $51 million over 10 years.
Less than a month ago, Obama pushed for 529 plans to be essentially eliminated by removing the educational tax benefits they enjoy. The president argued that 529 plans mostly benefit high earners capable of setting aside large amounts of money, and wanted to replace them with new tax credits targeted more towards lower earners. (RELATED: The Audacity of…What? Obama Pushing Taxes He Fought Against in the Senate AND In His Book)
This provoked a fierce backlash from critics, who argued that millions of middle-class families benefit from the plans. Some state financial officers also complained because their states encourage saving for college by offering limited matching of contributions to the plans. Opposition was so strong that Obama retreated from his proposal after barely a week. (RELATED: Obama Abandons Plan To Tax Americans’ College Savings)
The approval sends the bill to the Senate, where an equivalent measure has also been introduced, and enjoys backing from several Democrats, including Bob Casey, Mark Warner and Ben Cardin. It’s not immediately clear when or if this measure might reach a floor vote, though.
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