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Proposal to scale back savings plans dropped

WASHINGTON — The White House said Tuesday it is dropping a proposal to scale back the tax benefits of college savings plans amid a backlash from both Republicans and Democrats.

President Barack Obama made the proposal last week as part of his State of the Union address. It was part of Obama’s plan to consolidate and simplify a sometimes confusing array of tax breaks for college students.

Resistance from Congress was swift. Republicans publicly criticized the plan, and aides said House Democratic Leader Nancy Pelosi pushed senior administration officials to drop it as she flew with the president aboard Air Force One from India to Saudi Arabia.

Other Democrats also privately weighed in against the plan, including Rep. Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, and Sen. Charles Schumer, D-N.Y.

A White House official said Tuesday the proposal had become a distraction.

“We proposed it because we thought it was a sensible approach, part of consolidating six programs to two and expanding and better targeting education tax relief for the middle class,” said the official. “Given it has become such a distraction, we’re not going to ask Congress to pass the 529 provision so that they can instead focus on delivering a larger package of education tax relief that has bipartisan support.”

The officials spoke on condition of anonymity.

Obama’s plan would reduce the tax benefits of future contributions to the popular 529 college savings plans.

Current accounts would have been grandfathered, so existing funds could still grow and be withdrawn, tax-free.

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