Taxes

How Obama's 529 College Tax Plan Debacle Proves the Welfare State is Doomed

Someone has to pay for it-but no one wants to foot the bill.

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To understand just how bad the politics of Obama's now-withdrawn plan to tax 529 college savings were, think about it this way: Obama, under heavy pressure from both Democrats and Republicans, made a public show of pulling a proposal that already had no chance of passing.

Even as an inert fantasy proposal, it was so widely disliked that the White House had to back down.

It's a minor but revealing political fiasco—one that shows how distant the White House is even from the interests of its own party while offering a preview of economic policy debates and welfare-state fiscal challenges for decades to come.

The political optics of the plan were flat-out terrible for Obama, who put forth the proposal in the context of a State of the Union address built around the theme of Middle Class Economics. The gist was that Obama proposed taxing the wealthy in order to pay for new middle class benefits, like free community college tuition.

But, somewhat awkwardly, given the president's chosen theme, 529 plans are tax-advantaged savings vehicles that currently benefit an awful lot of middle class people. In particular, they benefit middle and upper-middle class families in high-tax blue states.

So it is not exactly surprising to find that, in addition to the entirely predictable GOP pushback against the proposal, Rep. Nancy Pelosi, a Democrat from California, and Rep. Chris Van Hollen, a Democrat from Maryland, lead a seperate Democratic push for the White House to drop the plan. This is an administration that is now so isolated and out of touch that it does not grasp the obvious interests of its own party.

The plan was also tremendously awkward for Obama himself. As the folks at Americans for Tax Reform have noted, Obama was not only a public booster of 529s, someone who as a Senator voted to make them permanent and praised them as tools to help families with college expenses in his book, he was also someone who had relied on a 529 himself, contributing $240,000 to a 529 college fund for his own children back in 2007. Obama took advantage of the plan's tax benefits—then proposed closing the door behind him.

As political miscalculations go, this was a minor epic. This was a major component of Obama's slate of State of the Union proposals, previewed and highlighted in a white paper released several days earlier. And yet somehow the White House seems to have managed not to solicit input from members of its own party in Congress, and to ignore Obama's personal history on the issue. The backlash to this proposal was entirely predictable, and yet the White House seems to have been caught by surprise.

How does a political miscalculation like this happen?

One possible answer is that it's just an inevitable symptom of an isolated second-term administration that is openly bored with Congress and out of touch with everyone outside its inner circle of supporters.

But another possibility is that this is the sort of plan than inevitably follows from the long-term fiscal logic of the welfare state.

Yes, the budget wars have calmed recently as annual deficits have fallen and the economy has improved. But total national debt remains at historic highs, and medium to long-term budget prognosis is still rather grim.

The core of the problem is clear: the growing cost of the entitlement state. As the Congressional Budget Office warned earlier this week, over the next decade, "spending will grow faster than the economy for Social Security; the major health care programs, including Medicare, Medicaid, and subsidies offered through insurance exchanges; and net interest costs." Tax revenues will stay essentially flat at around 18 percent of GDP, while spending, driven by entitlements, will rise to more than 22 percent of GDP. Longer-term projections indicate the cost of entitlements and interest on the debt will continue to rise in the decades after that.

In the bigger picture, the existing welfare state is unaffordable. Either it will have to be cut, or reformed, or paid for—by someone, somehow. The administration and its allies would like to reassure you that the someones who will pay for all of this will be limited to the richest of the rich, but in practice there's only so much money that can be squeezed out of the extremely wealthy.

Which means that eventually, anyone looking for ways to keep the welfare state afloat will have to go after after the middle class—and, in particular, middle class savers. That's where the money is. Sure, you can imagine alternatives, like a Value Added Tax (VAT), which might raise enough tax revenue to keep the budget in the clear. But it's hard to imagine a popular political coalition forming around a regressive consumption tax that gives the government a major new revenue stream.

If anything, it's far easier to imagine a popular coalition forming in opposition to such a plan. That's more or less exactly what happened with Obama's 529 proposal.

And it's why this episode and the swift bipartisan opposition it generated is so revealing, not only about the short term political instincts of the Obama administration, but about the longer term political and policy dynamics of sustaining the welfare state. If this is the reaction to a policy that was never going to pass, and, indeed, never really designed to pass, imagine the backlash to a middle class tax hike that was actually intended to go into effect. The White House may not want to acknowledge this problem, but that's the reality of, well, middle class economics. 

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  1. How does a political miscalculation like this happen?

    That’s our Obama! (cue laugh track).

    1. Maybe the Obamessiah believes his own flacks and doesn’t think he needs to ask mere mortals.

    2. And here’s another:
      http://www.usatoday.com/story/…../22513925/

  2. Hopefully this woke anybody with a 401K or IRA up that laughed when people said the government wants to change the rules on those.

    1. I’m young. My assumptions regarding retirement are the following:

      1. I will receive none of the SS payments that are promised.

      2. My Roth IRA will be taxed like income.

      3. Medicare benefits will be half what is promised.

      4. All earnings on IRAs and 401ks will be taxed as income starting immediately.

      If all of these come to pass then I will still be okay. If some of them don’t come to pass then I will have more travel money than expected.

      1. These assumptions are mine as well. My silver lining is I don’t qualify for a Roth IRA. But this illustrates how fucked this situation is. I feel lucky for not qualifying for a financial instrument.

        1. Everyone qualifies for a Roth IRA. Just contribute to a traditional IRA (non-deductible) and immediately do a conversion (owe no tax since it was a non-deductible contribution.) It’s commonly known as a back-door Roth.

          You need to have no rollover IRA or other deductible IRA– you can have a 401(k) or 403(b), so if you have a rollover IRA, roll it over to an employer plan first.

          1. Is this true regardless of income?

      2. I assume that if the government tried to Argentina on us and seize them all – that would start an actual armed rebellion.

        1. You would think, but it’s doubtful. They took over the entire health insurance industry, and nobody did more than flinch.

          1. But it wasn’t my “stuff” then. People get attached to things when they think they own them. Taking them away by a last minute rule change which pulls the rug out will definitely piss people off.

        2. Don’t underestimate their stupidity.

        3. I’m not sure there’s anything that can actually spark a no shit armed rebellion. Expcept maybe full dictatorship, and even then you’d have the Tonys and PBP’s ofthe country out there gleefully loading fellow citizens wreckers and kulaks onto cattle cars.

        4. Small moves, Drake. Small moves. I’m not saying they will seize my Roth IRA, just that they will double tax it. They could easily roll back the benefits on SS with a combination of raising the retirement age and small cuts here and there to benefit percentages. Same goes with Medicare. Not to mention that the cost of Medicare supplemental keeps going up too.

          Frankly I don’t expect all those things to happen either. I think one or two will happen, but I want to make sure I’m ready even if all of them happen.

          1. my bet is that they will do something like say “You are only allowed to invest 401k/IRAs in nice, stable treasuries…for your safety, of course”. Which basically means they have nationalized the accounts, since the only thing you can do is give the money to the government in return for a pitiful return.

        5. Drake|1.28.15 @ 1:15PM|#
          I assume that if the government tried to Argentina on us and seize them all – that would start an actual armed rebellion.

          That would depend how it’s done, and we have no plan at all so I can’t whine about it.

          If we just screech anti-gummint slogans loud enough and long enough …. verily it will come to pass. So far we’ve only been screeching since about the late 80s. Have faith.

      3. These are probably pretty good assumptions for retirement planning purposes. However:

        1. SS payments are not promised. The USSC has rule that Congress can change the rules any time it pleases. It can even end eligibility for specific classes of recipients (e.g., communists who repatriate to a communist country.)

        2. Your Roth distributions probably will not be taxed just like income. However, Congress will devise some tricky formula to extract revenue from your Roth that accomplishes the same thing. (E.g., reduction of SS benefits in proportion with retirement account distributions.)

        3. You’re probably optimistic on this one unless you don’t want the health care services that most geezers currently get.

        4. Quite reasonable.

        The big risk is that the feds nationalize all retirement accounts. Other bankrupt governments have done that, and it has been discussed in Congress.

      4. Seems a tad pessimistic.

        “1. I will receive none of the SS payments that are promised.”

        You’ll probably get 70%.

        “2. My Roth IRA will be taxed like income.”

        Agreed.

        “3. Medicare benefits will be half what is promised.”

        Agreed.

        “4. All earnings on IRAs and 401ks will be taxed as income starting immediately.”

        I think that’s too big an axe to gore. Instead, I suspect that Democrats will lower the contribution limit on IRAs and 401Ks.
        401Ks are currently limited to $18K per year, so they aren’t really much of a tax shelter for the rich.

        I could see them lowering the limit on 401Ks to $8K per year or so. (With no limits on pensions of course.) But even here they would piss off a lot of their higher education base.

        1. They already are limiting annual contributions based upon plan participation and whether you meet their entirely arbitrary definition of “highly compensated.”

      5. So, IOW, you are ok with being sheared, so long as you are not skinned.

    2. Exactly my thoughts when I read this. I’ve tried to mention to others that such an idea has been broached, and all I get is a Pollyanna-ish “Oh, they would NEVER do something like that…” Uh huh, sure.

  3. Next time it will take more than children to save you.

    1. i never get tired of this joke

      1. Better than the United States Marines, eh?

        1. Nothing is better than the USMC.

          1. The Coast Guard is.

      2. There is something that troubles me. The 529 Account. If it is there, then it is something the IRS was not meant to disturb. Political death has always surrounded it. It is not of this earth.

  4. “Quick, look over there! Someone is SAVING MONEY! We can’t have that, tax that man” We can’t have anyone actually keep the $$ they make.

    1. Someone, somewhere, is making some money, and we need to see how we can get our cut of it.

  5. Let me tell you how it will be
    There’s one for you, nineteen for me
    Cos I’m the taxman, yeah, I’m the taxman

    Should five per cent appear too small
    Be thankful I don’t take it all
    Cos I’m the taxman, yeah I’m the taxman

    If you drive a car, I’ll tax the street
    If you try to sit, I’ll tax your seat
    If you get too cold I’ll tax the heat
    If you take a walk, I’ll tax your feet

    Luv this:

    https://www.youtube.com/watch?v=_0M__0Z1pjg

  6. In the bigger picture, the existing welfare state is unaffordable.

    But remember: If you acknowledge that, you’re an extremist wingnut. Sensible people believe with perfect faith in an inverse Stein’s law. America was fun while it lasted.

    P.S. The 529 flap is yet another thing for my Obot Facebook friends not to talk about.

  7. How does a political miscalculation like this happen?

    Most likely reason is he just reads what is on the telepromter and has no clue what the meaning of the words are. Some flack wrote the speech and Obama reads it and appears to care.

  8. Who are these assholes that sit on stage with him while he bloviates? Don’t they have have anything better to do?

    1. But it’s teh prusidunttt!

  9. And that sign!
    I keep waiting for it to change to, well, “Wominz Economics” or some such.

  10. As much as I like bashing collectivists and making fun of them, collectivism and statism in general are unboundable. They have to keep growing because every expansion exposes new holes in their coverage. Eventually they fall down and hurt everybody in the process. Eventually a new minimal system will replace them, but it too will grow without moral limit until it hits the physical limit.

    The greatest flaw in collectivist and statist thinking is the willfull refusal to recognize either that their ideology requires permanent growth or that there are any limits to that growth.

  11. Up to I looked at the check for $4922 , I didnt believe that…my… friend was truly bringing in money parttime from there pretty old laptop. . there great aunt haz done this for under thirteen months and a short time ago paid for the dept on there cottage and bought a gorgeous Honda .
    have a peek at this web-site ????????? http://www.jobsfish.com

      1. No, Spam is a wonderful product that resulted from Hormel figuring out a way to cheaply separate meat from cheap pork shoulders and offer a protein and calorie packed long-shelf-life meat product at an extremely low price.

        Under Tony and Obama’s ideal you’d be lucky to eat a steady diet of peppers (because that’s all the local collective was allowed to grow) like the town in Yugoslavia I visited as a child (’88 I think). Rumors of the butcher shop having meat will result in a line a mile long like I saw in Budapest in 1987.

  12. Up to I looked at the check for $4922 , I didnt believe that…my… friend was truly bringing in money parttime from there pretty old laptop. . there great aunt haz done this for under thirteen months and a short time ago paid for the dept on there cottage and bought a gorgeous Honda .
    have a peek at this web-site ????????? http://www.jobsfish.com

  13. Wow, it’s like Obama is a clueless idiot in addition to being a closet communist…

    Funny thing is, he is a piss-poor *politician*. You would think that would be the one thing he was good at, but no. He spent six years acting like a dictator and telling the Republicans to suck it. Now he needs their cooperation but he very thoroughly poisoned that well.

    Well, politically he’s done. So it doesn’t really matter.

    1. Except for the fact that he still has two more years left to inflict massive damage upon the country in his vengeful manner. And he will.

    2. “Now he needs their cooperation but he very thoroughly poisoned that well.”

      It doesn’t matter. It’s looking like he’s not even going to bother attempting any kind of cooperation.

      “I’ve got a pen and a phone, so FU.”

      1. We’ll see how well that works out for him. I suspect it won’t…the only reason he isn’t widely derided as a vengeful, petulant little shit is that Harry Reid and the Dems in the Senate kept him from having to sign anything. That cushion is gone now…let’s see how well he explains his vetoes once he, personally, starts saying no to legislation people want.

        Even better, let’s see how long the Democrats stick with him when they have to constantly explain why their fucktard golden child keeps screwing things up. Now’s about the time you see political parties really throw their lame duck leaders under the bus.

  14. before I saw the receipt that said $6692 , I be certain that my friend was like actualie taking home money in there spare time on there computar. . there dads buddy haz done this for under twenty one months and resently paid the morgage on their home and bought themselves a Porsche 911 .
    read review ?????? http://www.netpay20.com

  15. Which means that eventually, anyone looking for ways to keep the welfare state afloat will have to go after after the middle class?and, in particular, middle class savers.

    And, honestly, the sooner they do, the better off we’ll all be. Until the middle class starts getting stuck with a significant part of the bill, they’ll always have a bias toward statism. If every tax cut has to go to the middle class (otherwise it’s “tax cuts for the rich!”). who already pay relatively little, and every tax hike gets added to the rich, the middle class has relatively little incentive to hold the line on taxes. Given their expectation that this is how the bill will come due, the middle class has little incentive to control spending.

    1. Until the middle class starts getting stuck with a significant part of the bill, they’ll always have a bias toward statism.

      We are, but it’s just magically deducted from our paycheck in return for the government cutting us a check in April every year.

      My wife and I are middle class, certainly not wealthy, we have massive debt, but we’re not living paycheck to paycheck either. I conservatively calculated our total tax liability (local, state, and federal) for 2014 at just short of $25k. Even if you divide that in half, it’s ridiculous! The only reason people aren’t in the streets rioting is because they haven’t crunched their own numbers. The middle class would burn Washington to the ground if they were made acutely aware of how much money is being taxed away from them.

      1. The middle class would burn Washington to the ground if they were made acutely aware of how much money is being taxed away from them.

        The ridiculous thing, though, is that they probably aren’t paying their proportional share. The top 10% of earners paid 68% of federal taxes. That means that 90% of the population paid just 32%.

        So, yeah, even getting squeezed dry, they’re underpaying. The tax and spending burden is just that completely out of control.

        1. When you have no say in how tax receipts are spent, it’s a bit disingenuous to say a certain taxpayer is underpaying based on the progressive rates of taxation. Hell, I’d argue that everyone is underpaying since there are annual deficits. But since my solution to the problem would involve the other side of the Ledger, it would be more accurate for me to say that our government is overspending and every taxpayer is overtaxed.

        2. But one does have to look at the overall % of income ALL TAXES AND FEES collects from taxpayers. My wife and I are borderline upper-middle class. We are both CPA’s and I can add. When ALL taxes are considered – both sides of the FICA taxes, other employment taxes netted from my total worth in terms of pay, fed taxes, state taxes, property taxes, sales taxes, excise taxes (namely gas taxes), fees and a modest estimate of corporate taxes nested in everything I buy – the total % we pay is ~48%.

          Half.

          And that is WITHOUT taking into account some stealth taxation by way of currency debasement, and regulatory imperatives of buying services within an oligarchic market, which has to send how much of my labor is directly taken or Forcibly allocated well past 50%.

          When my fair estimates show I’m shoveling 60% of my labor – the foundation of all the value judgments I’ve made in my life – by Force to others, I will begin to use Force back. It’s that simple. What sort of world am I leaving for my kids? I didn’t have them to slaves to the State. That, too, is that simple. One can only assume that if they’re going to go past 60%, there’s clearly no stopping them without “argumentation”. I can’t believe I’m the only middle class person who thinks this way. The middle class is already radicalized with the advent of the Tea Party. I think it’s only the beginning. Unfortunately the fomentation is clearly falling on blind eyes on both sides of the aisle.

          1. “When ALL taxes are considered – both sides of the FICA taxes, other employment taxes netted from my total worth in terms of pay…”

            This is a great Con job. Anyone that knows basic economics realizes that when the government taxes employers for FICA, unemployment taxes, and any other tax that’s directly based on employment, the money comes from lowering the amount of pay a company offers their employees.

            I’m in engineering and it’s obvious, because if you take a contract option instead of a salary option, the contract rate is adjusted upward to account for the full FICA taxes, because the contract employee pays the full 15.3%.

            But 90%+ of the population don’t grasp the fact that they pay all of the FICA tax and that the employer portion is just accounting sleight of hand to fool the rubes.

            1. That’s one change I’d get behind. All FICA taxes from the employee. The Employer pays nothing, but increases the salaries of the employees by the amount he now saves not paying FICA.

              1. The middle class would burn Washington to the ground if they were made acutely aware of how much money is being taxed away from them.

                If we swallow the liberal bullshit, we’ll keep losing forever.

                The rich subsidize nearly half the entire core middle-class income tax share. And those income taxes now subsidize about half of Medicare. The average income tax rate for Obama’s $50,000 secretary is 8.3%, For millionaires and billionaires, 23%

                Your $25k tax load is nowhere near the vast majority of core middle class (40k-100k) I use that range to filter out distortions of progressive rates.

                85% of the Bush tax cuts went to UNDER $250,000 AGI, who had paid only 45% of the tax — the biggest wealth redistribution since FDR.

                Thee middle class is getting screwed by the same gravy train that destroys all our best paying jobs and punishes their replacement with good jobs.

        3. That statistic is bogus especially in light of the government doing everything it can to screw labor and destroy the middle class. They are “underpaying” because they are being paid less and less by those at the top. That is the problem.

          When Reagan indexed taxes to inflation only 20% didn’t pay income taxes not it’s 47%. That means peoples wages aren’t keeping up with inflation even with the phony calculations used to under report it.

        4. Yeah, the problem is always a lack of government revenue.

          It has nothing to do with wasteful spending, gross incompetency, and a soul and enterprise crushing regulatory regime.

      2. The only reason people aren’t in the streets rioting is because they haven’t crunched their own numbers.

        ^THIS

    2. Don’t consider “the middle class” as a uniform group, because most politician plans won’t. They’ll tax a certain portion of the middle class (probably “those people” who mostly vote for that Other Team) to give things to others (on Their Team).

      The identity of Us and Them can be people with kids vs. those without, people who use daycare vs. those who stay at home, people who get lots of education vs. blue-collar, savers vs. spenders, and all sorts of other ones.

      There are always plenty of middle class people who don’t save.

  16. ” In particular, they benefit middle and upper-middle class families…”

    The “upper middle class” being ‘the rich’ that just don’t know it yet.

    Its amazing how you will find all these rich suburbanites in full support of these ‘soak the wealthy’ laws…. only to discover that they *are* the ‘wealthy’. Because its always ‘some other guy’s money’ that they think will ‘solve the problem’.

    nevermind that the last thing the country needs are more ‘community college’-educated-idiots paid for on the backs of people who are saving to send their kids to ‘good schools’.

    He’s basically shitting all over the “middle class” here = suggesting they fund huge new entitlements for ‘the poors’ that they don’t actually need. Because the problem ‘the poor’ have isn’t a lack of Book Learnin’. Its a lack of JOBS.

    1. Its amazing how you will find all these rich suburbanites in full support of these ‘soak the wealthy’ laws…. only to discover that they *are* the ‘wealthy’.

      Yes. The thing is the Democrats are completely fucking clueless about who considers themselves middle class.

      Their definition of “middle-class” is more like “working poor”. They lump professional couples making $150K in with the “wealthy”, even though they are probably struggling to afford a single-family home.

      But, the surprise is, one day something like this happens and the actual professional couple discovers that when the D’s go on about the “middle-class”, they aren’t talking about them, they are talking about the secretary married to the auto-mechanic that make

    2. That’s because everyone believes that they are the middle class. Anyone making more then them are the rich… and those who have preferences and habits they don’t like are the lower class.

      1. It’s pretty easy to think you are middle class when you can’t afford to buy a house.

      2. “Nephilium|1.28.15 @ 1:57PM|#

        That’s because everyone believes that they are the middle class. “

        Yep.

        In college in the mid 1990s, i got in a debate in class about an essay in the New Yorker which pointed out that – according to the traditional definition of what the middle class *was* – that the Middle Class was effectively Dead.

        because ‘middle classes’ in historical economic terms was primarily defined as being “owners of their own business”.

        Upper classes inherited social title/rank and property*, which was the source of their power and income (tenents who lived on their land; worked their fields)

        Lower classes worked for wages or at best owned some portion of land but still paid their protector a tithe for the right to work it. They were tied to the land.

        Middle classes were those who left the protections of a lord, and became merchants and/craftsmen who owned their own source of revenue and were not beholden to any outside master for ‘permission’ to expand or move their operations.

        The ‘middle class’ that built America were not the union laborers that Dems always sing paens to. They were the small shopkeepers, tradespeople, business owners that didn’t rely on some Massive Industrial operation the way unions did like feudal Serfs.

        This essay really upset the kids who thought of themselves as ‘middle class’ but whose family were basically all wage-earners. The idea of ‘business ownership’ being a class-definer bothered them.

        1. *note =

          a point made in the above framework was that ‘class’ was completely separate from ‘wealth’ in the traditional notion.

          Upper classes could be *poor*. They might retain title and property, but it earns nothing.

          Lower classes could have wildly profitable enterprises but still need the permission of a lord to operate under their protection.

          The middle classes were distinct not for their income level, but their *relative independence* from other systems of authority and social-mobility.

        2. Lower classes worked for wages or at best owned some portion of land but still paid their protector a tithe for the right to work it. They were tied to the land.

          With the way property tax is currently set up, we’re all lower class now.

      3. Yep. I ran into this when I was in college. I grew up in a poor area in WV, and went to VT. VT was filled with tons of kids from the NOVA/fairfax area that didn’t get into Washington lee / UVA.

        Had a discussion with a few of them one day about how, while they might consider themselves middle class, they are still leagues better financially than most of the country. We’re talking families where both parents are lawyers/Doctors/executives/etc, in a very rich neighborhood outside of DC. Probably combined income in the 300K+ range. When I’d share that my family’s combined income was in the 40K range, the look of horror that came over their face was priceless.

    3. “Its amazing how you will find all these rich suburbanites in full support of these ‘soak the wealthy’ laws…. only to discover that they *are* the ‘wealthy’. Because its always ‘some other guy’s money’ that they think will ‘solve the problem'”

      And O’care is a perfect example of what you say Gilmore.

    4. “Its amazing how you will find all these rich suburbanites in full support of these ‘soak the wealthy’ laws…. only to discover that they *are* the ‘wealthy’. Because its always ‘some other guy’s money’ that they think will ‘solve the problem'”

      And O’care is a perfect example of what you say Gilmore.

  17. This is doubly painful because even if the middle class sucks it up and accepts big tax increases, it won’t help. The Tony types will see the money and immediately pipe up “Oh boy! Now we can start a shitload of NEW programs!”

    1. Its remarkable how quickly things that are seen as ‘nice to have’ government programs becoming ‘must have’/life-essentials/human rights once they’re put in place.

      The Hobby Lobby ‘free contraception’ discussion was pretty retarded in how it was being discussed as a ‘human right’ over the summer….when it was something that had never really existed before – and never mind the distinction between “free” and “paid for” was merely a matter of transferring payment between ‘point of service’ to being ‘deducted from your paycheck’.

      I still find it remarkable how many people seem to believe that things are ‘free’ just because you don’t pay at the actual ‘checkout’.

  18. I still have FB friends swooning over this idea. I don’t think the idea is dead, or the notion that the welfare state is doomed. If the D’s had control of congress still, this would have passed. The D’s are just responding to risk and incentives like everyone else. There is no possible gain for them supporting this because it won’t pass, but they risk some of their constituents getting upset over their idea to tax little Johnny’s college fund.

  19. What it really demonstrates is how out of touch the Democrats are with actual middle-class voters.

    They wanted to set the threshold for the tax benefits at an annual houshold income $150,000.

    In many parts of the US, $150,000 is not even enough to afford a mortgage on a single family home. Not when the average home price is $500,000+, which is a lot of places.

    It just seems like Democrats have no idea what the cost of living actually is these days. They have no idea what is actually middle-class anymore. They think $150,000/year is too rich to deserve a tax cut on college savings.

    1. “They wanted to set the threshold for the tax benefits at an annual houshold income $150,000.”

      Hazel, I don’t think that’s accidental. Remember that Obama used to talk about a $250,000 threshold. I think the Administration has crunched the numbers and realized that trying to raise taxes on the far fewer +$250K income families would be harder than raising it on the +$150K income families.

      Shorter version: They are running out of other people’s money.

  20. “Middle class economics”? Let’s just call it what it is: populism.

    Statistically 2/3’s of the population can be thought of as middle class (mean income +/- 1 standard deviation). If you assume a bell curve distribution, than 1/6 are at 1 std dev or above (the “rich”), and 1/6 are more than 1 std dev below the mean (the “poor”).

    Anyone who thinks that it’s feasible to give out goodies to the “middle class” and pay for by only taxing the shit out of the 1/6 of population that’s “rich” is a fucking idiot. But these fucktards probably really believe that “the rich” are a bunch of real life Scrooge McDucks with swimming pools full of money that they’ve stolen from the proletariat masses and hoarded or some such Marxist horseshit.

    1. I haven’t heard such sentiment on radio talk shows for 30 yrs., but I’m sure it’s still out there. It’s like they believe society operates at the sufferance of a tiny upper class, based on what can be wrung out of them in wages and/or taxes. Funny thing, though, is that in the USA the tax system (levels combined) has changed to approximate that situation, except it’s not how society operates, but gov’t.

    2. Anyone who thinks that it’s feasible to give out goodies to the “middle class” and pay for by only taxing the shit out of the 1/6 of population that’s “rich” is a fucking idiot

      It’s worked (in a way) for a quarter century now, both parties. Here are the actual numbers, IRS weblink and sources. Choose an xlx (excel) file on top or pdf below it.

      http://www.census.gov/compendi…..1s0486.xls

      http://www.census.gov/compendi…..1s0486.pdf

      On the far right. Average income tax rate .

      Obama’s “$50,000 secretary” averages – 8.0%
      Core middle class ($40-99k) – 8.3%
      Millionaires up – 22%

      Now a “fair share” of taxes. $billion

      REPORTED INCOME = $8,263
      $40,000 to $49,999…..$497
      $50,000 to $74,999…..1,180
      $75,000 to $99,999…..1,014
      TOTAL…2,671 = .32.3% of personal income)

      INCOME TAXES PAID $1,032
      $40,000 to $49,999….3
      $50,000 to $74,999….93
      $75,000 to $99,999….92
      TOTAL = .216 = 20.9% share of tax

      20.9/32.3 = 64.7% which is all the middle class pays of it’s own share.

      Dvide the other way. 32.3/20.9 = 155% – 100% = 55% is the tax increase just to pay their own way.

      Among other things, the fair tax and the flat tax are impossible.
      Except for the trible chanting

  21. As a side note, I once again have to point out what an ass-fucking the Obama administration is giving the kind of people who were his stanchest supporters in 2008.

    I mean seriously, who is more likely to have a Hope sticker on their car than an East Coast professional couple who were in college earning their Bachelor’s in 2007-2008? And who is more likely to be EXACTLY the kind of people to get fucked over by having their kid’s college fund taxed? An East Coast professional couple just starting ot have kids.

    Who got fucked over the most by ObamaCare? Young professionals in their late 20s.

    The pattern continues. Obama continues to show those SWPL idiots that voted for him in 2008 exactly what he thinks of them.

    1. And yet they voted for him again in 2012….

  22. Well, I dunno.. I doubt “the welfare state” is in any danger, I don’t think the government necessarily trying to help or hurt anyone, but for their own reasons they want to give themselves more power over colleges and universities. The way you take over something is by funding it. I think “the welfare state” is just what the RepublicansandDemocrats prefer it to be called.

    Universities and colleges have occasionally been troublesome for the DemocratsandRepublicans, as have, say, minorities seeking things like opportunity and justice. The solution is to put them all on welfare.

  23. At the root of socialist conceits is the idea that if we all chip in, the government can help all of us.

    I am very libertarian, but I would happily live in a government that extracts taxes to provide programs for the truly unfortunate. The problem is that people truly believe that the government ought to be in the business of helping the unfortunate, fortunate, just-getting by, and the comfortable. It is asinine to see supporters of this worldview argue that it is somehow economical to take $1 from a middle class person, send it to washington and get $.70 back to pay some service provider. But that is what these people think is possible.

    1. $.70 would be a decent return. I bet it’s more like $.20.

      1. Oh, it’s generally more like $0.80. But they make up for it with volume. A whole lot of volume.

    2. I am very libertarian, but I would happily live in a government that extracts taxes to provide programs for the truly unfortunate.

      What about a choice? To what we have now, add an option. For every dollar you give to a “life support” charity, you get a $1 tax CREDIT.

      Until about 25 years ago, that’s the kind of things libertarians were proposing and talking about.

      Two competing tactics — pro-liberty vs anti-gummint.

      Today, the anti-gummint snarling has replaced the pro-liberty salesmanship. We’ll see a Ron Paul snarling bullshit that will never be adopted, but for tribal libertarians, it makes their leg tingle.

      Tribal libertarians are now less than 6% of the people, vs 59% for all lib flavors. The huge difference is because 85% of total libertarians reject the libertarian label. Here’s why:

      The libertarian who came up with tax credit spoke softly how some people would support charities that demanded personal accountability, others would give money to whoever asks. It’s your money.

      That’s not allowed any more. The libertarian fundamentalists scream, “git gummnint totally out.” They’re too fucking stupid to know that would happen, at whatever pace private charities would rebuild. Which is why they are fundamentalists.

      1. Babbling does not count as actual discourse, so try again.

  24. “The Welfare State is Doomed”? Are you on drugs. Have you any idea how many people are on the LEFT Economically…. I mean California and Illinois are going to FAIL and we are going to have to bail them out….

    1. Leftist statism is doomed to fail from the start. The shame is how the vortex they create at the sewer pulls the rest of us in with them. States who want to foolishly experiment with failed political systems should do so only at their own peril.

      1. Leftist statism is doomed to fail from the start. The shame is

        No, the real shame is the we’ve been repeating slogans like that for 40 years, expecting something to change.

        States who want to foolishly experiment with failed political systems should do so only at their own peril

        What policies would you support or propose to address the challenges?

        1. 40 Years?
          As long as people forget the failures of leftist statism throughout history, this slogan needs to be repeated constantly.

    2. “The Welfare State is Doomed”? Are you on drugs

      You finally noticed. 🙂
      Probably traces to the Libertarian Moment meme.

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    1. Appears your “free” education is working splendidly for you.

  26. What our kids need are valuable educations. “Free” educations are about as valuable as the free part of the price tag. We already have far too many “educated” fools fouling up life in this nation. Even more of a bad thing doesn’t magically make it a good thing, it just makes it even worse.

  27. The Federal Government does not have a revenue problem –
    The Federal Government has a SPENDING problem!

  28. Why not scrap the income tax altogether and implement a national sales tax? It would act almost like a progressive tax as people with more money to spend will end up paying more in taxes without taking a dis-proportionate amount from their earned income.

    Seems like the fairest and surest way to do it to me.

    1. Just don’t tax food or other basics. That would keep it a little more progressive.

    2. Why not scrap the income tax altogether and implement a national sales tax?

      Because it’s fucking stupid. Even crazier than Ron Paul’s “Repeal the income tax. Replace it with nothing. Run the government on FICA taxes.”

      The flat tax and sales tax make no sense unless you believe the liberals that the rich don’t pay their fair share. When the rich subsidize about 50% of the entire tax burden for the core middle class — and you smooth out the rates, middle class taxes will increase by roughly 50%. Even worse with a sales tax, because the rich consume such a small percentage of their taxable income.

      All that was too extreme for even Ayn Rand!

  29. Umm, even with Reason’s current flair for hysteria — “welfare state is doomed” — is straight out of Monty Python.

    The REAL reason for pulling back is that Obama wanted to tax people who were saving for college, and give it to people who were not, as reported by, ummmm, Reason. The welfare state is rarely so transparently stupid across the board. On the same scale as the libertarian moment, when the label is rejected even by 85% of libertarians (Cato/Zogby Poll)

  30. “But another possibility is that this is the sort of plan than inevitably follows from the long-term fiscal logic of the welfare state.”

    They’re coming after “tax advantaged” savings accounts. It is inevitable. It’s a big pile of money, and they *wants* it.

  31. Obama gave one really good speech a year before he was elected. The ‘Yes We Can’speech. For that, and his semi-black looks, he was appointed by the media. He beat two weaklings – McCain and Romney. He would have lost to Romney except the fundamentalist Christians stayed home due to the ‘fact’ that Mormons aren’t Christians.

    His campaign against Hillary was really good. Very smart. But, I doubt he had anything to do with it.

    Since then, nothing. Not one good speech. Every one of his lousy speeches was reported as ‘surprisingly flat for such a skilled orator’, and other such comments.

    He has NO SKILLS. Period. He was and is a creation of the media. He has no thoughts. He is the empty man. How could he have made such a bone-headed move? Because he is a bonehead.

    1. What do you expect inside a figurehead?

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  33. “…so isolated and out of touch that it does not grasp the obvious interests of its own party.”

    Hey, leave the GOP out of this.

  34. My concern is that this attempt was intended not to help people get a community college education, but instead, it was an attempt to encircle the community college system with the same tentacles that FEDGOV has entrapped the university system with. More leftist views and more democrat voters is their plan. It has little to nothing to do with helping young adults get started in life.

  35. I have trouble worrying about the Welfare State when huge outlays for military adventurism and bankster relief are still so popular with out rulers, and when they print carloads of money whenever they feel like it anyway.

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  37. Thanks for the item. For more on what Libertarians are actually doing worldwide on these and other topics in every country, please see the Libertarian International Organization at http://www.LibertarianInternational.org

  38. Being hopelessly in debt hasn’t stopped the welfare state. I don’t think financial collapse will either. The feds may have to confiscate all remaining private property and pretty much end the bill of rights and whatever remains of the free market, but the welfare state will live on. The fact that raiding 529 plans was supposed to be an applause line shows you just how far the country’s fallen.

  39. The welfare state won’t die when the government kills the economy. It’ll just turn into feudalism.

  40. What this proposal shows is why you can’t trust government. Put aside for the moment whether you agree or not with 529’s, IRA’s etc.

    Once money is put in such accounts with government rules it only shows the government a pot of money for which their greed can’t resist. There is no greed more insatiable than government greed and they are the only ones that can legally force their greed upon you at the point of gun.

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