Wednesday, October 13, 2010

An Extension to the College Tax Credit

Obama wants to extend the American Opportunity Tax Credit. This credit allows households with income less than $80,000 a tax credit up to $2,500. The average tax credit is nearly $1,700.

In class we've talked about the need to shift taxes away from things that are productive into a consumption based tax. I like this extension. With the rising prices of college it is a huge break for middle income families. This also provides more fuel to my argument, why should anyone pay taxes on money that is being used to send their children to college. We have established 529 college saving plans which act as a tax shelter, but unfortunately most households are not taking advantage of these benefits. If they were then we wouldn't need these income tax credits. Further, the households that are using the 529 plans are generally higher income. So again the middle income families are facing larger tax burdens.

Instead of having to create these tax credits and the necessity for 529 saving plans a simple switch from an income tax to consumption based tax would solve a number of problems.

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