<p>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.</p>
<p>Should a portion of savings for college from earned income be tax free and outside of the financial aid process. What if an amount equal to what you have paid into social security could be saved for college without any tax or penalty?</p>
<p>In view of the deficit and growing national debt I think the termination of the tax break for teenagers’ investment income falls into the category of “pay me now or pay me later”, except that for young people it’s “pay me now and pay me later, because my rich buddies are off laughing at your parents for being such suckers.”
Seriously, since few teenagers are realizing investment income from mney they earned themselves, it’s just rearranging the deck chairs for the parents of teens who have enough money to set it aside for their college education. I guess the answer is “put it in a 529 instead.”</p>
<p>Point well taken, but you do agree this is a tax increase. The first paragraph after my question was a quote from the NYT that I accidentally left out of quotes. There was a promise and it appears broken.</p>
<p>sorry, Mr. B. I have zero sympathy with parents who stocked away money in thier kids names and benefited from a lower tax rates for the past (up to) 18 years…IMO, this is just closing a loophole.</p>
<p>Tax increase, perhaps, but another way to look at it is how much has been saved by the loophole over the past 18 years…</p>
<p>I don’t take any promise made by President Bush seriously. More to the point, I’m a little annoyed by the cancellation of a tax preference being referred to as a tax “increase”. In fact, the net result of this provision is that teenagers are taxed - like everyone else. They should get used to it - by the time they are our age they’re going to be paying their own taxes, plus paying off the debt caused by our not paying our fair share during the last three Republican administrations. </p>
<p>“A few very wealthy people get even wealthier, a generation gets the shaft.” – The motto of the Bush Administration.</p>
<p>Mr. B:</p>
<p>since this law affects INVESTMENT income, it hits the rich the hardest, does it not? (How many poor kids have investment trust funds?)</p>
<p>Its simply more crapola from the tax writers who want their hand deeper in people’s pockets. If you give money to your kid, its his. There is no reason to tax it at the parents rate other than to grab more of what some people have in order to spend it on others.</p>
<p>The journalistic hypocrisy of bringing up something that most reporters would have agreed was a good way to further soak those underserving rich people as an example of a broken tax promise is just another example of how brain-locked the new writers are.</p>
<p>
…And if he gives it back at the end of the year, plus interest, it’s yours again! And you’ve just figured out a way to pocket the interest on about $20,000 per kid without paying taxes on it like the poor bozos who can’t take advantage of loopholes like that. Or you can just use it to pay the bills for the kid which otherwise you’d be legally obligated to pay out of your own (after tax) income, again, like those other suckers.
other than, well, ^. :)</p>
<p>well, its a big more complex than that, since the interest is reported on the 1099s and someone will pay the tax. Its just a question of whom, and at what rate. What it means is that kids who save money have their investment earnings taxed at their parents income tax rate until they are eighteen. </p>
<p>And giving it back each year doesn’t work anyway. If you pass lets say 10,000 back and forth each year, you are losing the “gift” exemption from the estate tax that allows you to give away 10,000 (actually 11,000 now) each year to anyone without having the feds ask you in advance for the estate tax that you would have to pay if you held on to it until you die.</p>
<p>This isn’t an enormously big deal in the scheme of things, and you come to expect it from the tax writers, but to have the journalists trot this out as an anti-Bush point is jaw-lockingly stupid.</p>
<p>Well, dadX, it’s even more complicated than that. The gift exclusion is $11,000 per person, so that’s $11,000 from dad and another $11,000 from mom - $22K per kid. Anything below that basically doesn’y exist as far as IRS is concerned - no return, no nothing. Even above that you just file an informational return and subtract it from your $2 Million lifetime gift and estate tax exemption - no tax due. The reason not lumping it in with the parents investment income allows tax avoidance is that the kids’ total income may well be below the tax threshhold, and even if it exceeds the threshhold their initial rate will be lower than the parents marginal rate.</p>
<p>Basically it treats investment income as “family” income until the kids are legally adults. Sucks for kids who save their own money (as mine have) but it’s unlikely to amount to a whole lot of taxes for them in the vast majority of cases - how much earned income do most teenagers have to reinvest?</p>
<p>But I agree that it’s no big deal, and calling it a broken promise by Bush is bush-league. I’m sure it was unintentional. The revenue raised by this lack-of-a-tax-break is supposed to be borrowed from the next generation, not paid by current taxpayers.</p>