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EDITORIAL: President going after middle-class money

Drilling “the rich” with ever-higher taxes is problematic because there aren’t nearly enough wealthy people to pay for everything government wants. President Barack Obama finally has figured this out. But instead of reining in government, he tried to go where the big money is: the middle class.

The president proposed tapping currently tax-free 529 college savings plans by taxing withdrawals as ordinary income — in part to pay for his misguided “free” community college initiative. The proposal was an incredible act of bad faith. Millions of families have built their children’s futures around these investments. That the president backed off the plan Tuesday because of fierce bipartisan opposition doesn’t change that fact, and it certainly doesn’t change what he believes. Somehow, the Obama administration has determined that if you’re capable of sacrificing to save for your children’s education, you’re “rich,” and you should be forced to further subsidize those who don’t save — even those who are capable of saving but refuse to sacrifice.

But as The Wall Street Journal’s Josh Mitchell reported, more than half of all college savings accounts are held by American households that earn less than $150,000 a year, and 30 percent of account holders earn less than $100,000. These are people who can’t afford to pay as they go for their kids’ college, but who also won’t qualify for much if any aid.

University of Tennessee law professor Glenn Reynolds wrote in his weekly USA Today column that the president’s proposal wouldn’t have hurt the very rich at all, because they don’t use these accounts — they pay out of pocket. Nor would it have hurt the poor, who get more financial aid. “But it’s pretty rough on the middle and upper-middle class. In a double-whammy, those withdrawals will show up as income on parents’ income tax forms, which are used to calculate financial aid, making them look richer, and hence reducing grants.”

Here’s the more frightening prospect of the president plotting to blow up a program that encourages saving while minimizing tax bills, especially because he now won’t pursue the 529 funds: How long before he or someone else in the federal government comes after all that middle-class money in tax-deferred retirement accounts such as 401(k)s and IRAs?

The president’s proposal was a terrible one, particularly from someone who purports to champion the middle class. The Republican Congress must make sure other terrible proposals don’t take its place — because they’re coming.

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