So many goodies
by digby
... for the wealthy in the tax bill. Here's just one of them:
If we are to believe the Republican policymakers who control the current attempt to overhaul our tax system, a big point of the exercise is to help the middle class. So how best to explain a possible tax break of more than $30,000 per child for wealthy families who send their kids to private school?
That number is the potential net new tax savings, under the House tax plan, for parents who deposit a large amount of money when their kids are born. They would get that benefit by using the money for children starting private school in kindergarten and attending through high school.
Buried in Section 1202 of the tax bill are a number of proposals to consolidate and simplify various tax breaks for education savings. Part of the section in effect would neuter something called a Coverdell account, which families have used for years to save for both private school and college.
But then comes the big change: Elementary and high school expenses of up to $10,000 per year would become “qualified” expenses for 529 plans. Translation? You could pull $10,000 each year out of your 529 account for private school and avoid paying taxes on any previous growth. There are no income limits on who can use 529 plans, and you would be able to keep right on saving for college as well.
So what would it mean to add private school benefits to 529 plans? Take a wealthy family in the highest tax bracket. It has a newborn baby, and through some combination of gifts and its own savings, it opens a 529 plan with $200,000 and never deposits another dime.
If the money grows at 6 percent annually, that family could take out the $10,000 each year, avoiding $2,380 in taxes annually. If it did that for 13 years (kindergarten through 12th grade), it would save $30,940 in taxes. Plus, according to numbers that Vanguard ran for me, it would still have enough left over after high school ($370,717) to pay for many pricey private colleges in full, as long as tuition inflation there ran no more than 3 percent annually.
The Republican bill would allow people to take $10,000 out of 529 plans each year to use for tuition for private school in kindergarten through 12th grade. Plus, you’d still be able to use the money for college. Here’s how far the money might go if you didn’t add another dime, assuming current private college costs of $56,330 and annual tuition inflation of 3 percent.