Congress/Bush pass tax on College Savings Funds

[Caitriona]

I have no idea why, but this just figures. Boast about cutting some taxes and then sneak a tax hike by...

NY Times

The $69 billion tax cut bill that President Bush signed this week tripled tax rates for teenagers with college savings funds, despite Mr. Bush's 1999 pledge to veto any tax increase.

Under the new law, teenagers age 14 to 17 with investment income will now be taxed at the same rate as their parents, not at their own rates. Long-term capital gains and dividends that had been taxed at 5 percent will now be taxed at 15 percent. Interest that had been taxed at 10 percent will now be taxed at as much as 35 percent.

The increases, which are retroactive to the first day of the year, are expected to generate nearly $2.2 billion over 10 years, according to the Congressional Joint Committee on Taxation, which issues the official estimates.

Over all, the tax bill that Mr. Bush signed Wednesday reduces taxes by $69 billion.

Mr. Bush pledged in 1999 to veto any bill that raised taxes. In response to a question about the tax increase on teenagers in the new legislation, the White House issued a statement Friday that made no reference to the tax increase, but recounted the tax cuts the administration has sponsored and stated that President Bush had "reduced taxes on all people who pay income taxes."

Challenged on that point, the White House modified its statement 21 minutes later to say that Mr. Bush had "reduced taxes on virtually all people who pay income taxes."

The deputy White House press secretary, Kenneth A. Lisaius, declined to discuss the reasons Mr. Bush broke his pledge or anything else beyond the modified statement, which emphasized the $880 billion in tax reductions from tax laws Mr. Bush signed in 2001 and 2003.

Americans for Tax Reform, an influential lobbying group that seeks to reduce taxes, had led the drive to press politicians to pledge no new taxes. The pledge has been signed by 256 members of the House and the Senate, nearly all of them Republicans, and by thousands of candidates for state and local office.

The pledge commits signers to "oppose any and all efforts to increase the marginal tax rates for individuals and businesses." Mr. Bush went beyond the pledge when he was seeking the Republican nomination for president.

"If elected president, I will oppose and veto any increase in individual or corporate marginal income tax rates or individual or corporate income tax hikes," he wrote in June 1999 to Grover Norquist, president of the Americans for Tax Reform.

Mr. Norquist, in an interview Thursday, said he was unaware that the bill raised taxes and tax rates on teenagers with college savings funds because "no one here noticed" the provisions. But Mr. Norquist called the bill raising taxes on teenagers with investment income "a technical violation of the pledge" and noted that his group opposes all retroactive tax increases. He pledged to immediately begin a campaign to have the tax increases rescinded.

 

[Blindgroping]

Doesn't that cancel out the interest rates on the account?
So that any interest goes directly to the tax?

"BUSH, Not for America's educational future"

 

[Caitriona]

In the long run, it definitely will make higher education more problematic for the middle and lower class. Scholarships and student loans will [ostensibly] still be available, but that just means that the government can tax the saved college funds and make loan interest on what is borrowed.

 

[Blindgroping]

it doesn't solve anything in the short run but make a little pocket change for the gov't, but causes a lot of problems in the longrun.

So I ask, Why?

 

[Caitriona]

They have to try and reduce the deficit. The promised not to raise taxes, so they have to sneak some past the voters.

Might as well tax a generation that hasn't come into their earning power yet. Hell some of them might not even be of voting age yet.

Someone on another board mentioned that this is a tax on the very generation that is going to inherit this deficit. Seems a lot like passing on even more grief to a generation we've effectively put into poverty before they've even begun.

 

[Blindgroping]

They have to try and reduce the deficit. The promised not to raise taxes, so they have to sneak some past the voters.

Might as well tax a generation that hasn't come into their earning power yet. Hell some of them might not even be of voting age yet.

Someone on another board mentioned that this is a tax on the very generation that is going to inherit this deficit. Seems a lot like passing on even more grief to a generation we've effectively put into poverty before they've even begun.

Bush is NOT for the American future.

 

[Morrhigan]

I have a theory: Bush's advisors are having a contest to see how much they can get away with before the citizens stage a revolt.

 

[Blindgroping]

that makes sense. He doesn't have to worry about reelection.
Just how far can he puush it before it breaks?

 

[Caitriona]

It makes you wonder exactly what they are getting away with doesn't it?

 

[RobL]

So I ask, Why?

Because they can be used as tax shelters.

Think about it.

Executive from company "A", who earns a million dollar salary, has two or three kids. He's obviously in the top tax bracket, and has a shitload of capital gains taxes to pay. So, what to do? Its obvious that the two kids will go to a ivy league campus. Which costs a lot. So. Why not put some of your money in your kid's names? They don't have a salary like you do. In fact, the only income they have is the interest most likely. So instead of your accounts being taxed at 35%, its only 10%. You save fifteen percent on your investment of (probably) several hundered thousand dollars.

Also, rich people aren't the only ones doing this. My parents did it, to a degree. Middle class not wanting to have to pay as much, or those right on the edge of their tax bracket were using it as a shelter.

This isn't the first time this break has been axed. It got axed when I was a little tyke, and it came back when I was in high school. In fact, I was probably the only one in my elementry school who had to file a federal income tax form.

 

[Anna]

Well, Gee, Mr. Bush, just because you're not brain smart doesn't mean you have to punish the rest of America that *can* read books. :gagh:

 

[Eggs Mayonnaise]

Because they can be used as tax shelters.

Think about it.

Executive from company "A", who earns a million dollar salary, has two or three kids. He's obviously in the top tax bracket, and has a shitload of capital gains taxes to pay. So, what to do? Its obvious that the two kids will go to a ivy league campus. Which costs a lot. So. Why not put some of your money in your kid's names? They don't have a salary like you do. In fact, the only income they have is the interest most likely. So instead of your accounts being taxed at 35%, its only 10%. You save fifteen percent on your investment of (probably) several hundered thousand dollars.

Also, rich people aren't the only ones doing this. My parents did it, to a degree. Middle class not wanting to have to pay as much, or those right on the edge of their tax bracket were using it as a shelter.

This isn't the first time this break has been axed. It got axed when I was a little tyke, and it came back when I was in high school. In fact, I was probably the only one in my elementry school who had to file a federal income tax form.

Well if that's the real reason, why can't the White House spokesman just answer a simple question about it rather than divert and spin in vagueries?