Lesson No. 1: Comprehensive tax reform — a grand swap of lower rates for fewer deductions — is going to be very, very difficult.
The White House was right to say that 529s disproportionately benefit wealthy people who could send kids to college without it and that taxing the earnings in new accounts could help pay for better targeted college-access policies.
The 529 industry’s rapid-responders produced statistics showing that non-plutocratic families take advantage of 529s, too, as they undoubtedly do.
Yet it is a simple arithmetic fact that tax deductions are most valuable to upper-income taxpayers, because they pay the highest marginal rate. This is doubly true for tax-advantaged savings, since rich people save more.
In other words, 529s function much like other provisions in the code whose benefits skew upwards but can, and will, be portrayed by lobbies as vital to the middle class — the deductions for mortgage interest and state and local income tax come to mind — if anyone tries to curtail them.
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