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Obama Drops Proposed Tax Increase On College Savings Plans

By Kevin G. Hall and Lesley Clark, McClatchy Washington Bureau (TNS)

WASHINGTON — Under bipartisan pressure, the White House Tuesday quietly abandoned a proposal to raise taxes on a popular program used to save for college.

President Barack Obama had proposed earlier this month to eliminate tax breaks adopted in 2001 for new contributions to 529 college savings plans. But he faced a backlash in the recent week from members of both political parties, as well as operators and users of the state-based plans.

“A tremendous outpouring of support for retaining these 529 tax incentives has come from 529 plans, members of Congress, the media, and, most importantly, the families who have benefited and are benefiting from their participation in a 529 plan and achieved a better life through post-secondary education,” said an alert from the Virginia program.

A White House official, speaking on condition of anonymity as part of administration policy, said that Obama decided to drop the proposal after a personal plea from House Minority Leader Nancy Pelosi (D-CA) aboard Air Force One en route from India to Saudi Arabia. The top Democrat on the House Budget Committee, Maryland’s Chris Van Hollen, also lobbied the administration.

Republicans also pressed to drop the proposal.

The 529s, created in 1996 and established now in nearly every state, work similar to a 401(k) retirement plan or an individual retirement account, where money is invested and grows without being taxed if upon withdrawal it is used for college tuition or qualified college expenses.

There are an estimated 7 million plans now in existence.

“I’m glad President Obama has decided to listen to the American people and withdraw his tax hike on college savings,” House Speaker John Boehner (R-OH) said. “This tax would have hurt middle-class families already struggling to get ahead.”

Sen. Charles Grassley (R-IA), who was chairman of the Finance Committee when the 529s were modified in 2001 and boomed, said the programs are popular among the middle class.

“The statistics suggest that Iowa’s program is used by parents and grandparents who are making an effort to set aside money to save for their children and grandchildren’s education,” Grassley said.

The issue is far from dead, as Republicans had already been pushing to expand the use of 529s. Rep. Lynn Jenkins (R-KS) has already introduced bipartisan legislation to expand a tool many families use to save for college.

“It took a public backlash for the president to realize that taxing college savings plans was a bad idea. But withdrawing the proposal is not enough,” said Rep. Paul Ryan (R-WI), the new chairman of the tax-writing House Ways and Means Committee, calling on Obama to support Jenkins’s plan.

Photo: House Democrats via Flickr

Obama Plan Makes It Easier For Younger, First-Time Homebuyers

By Kevin G. Hall and Lesley Clark, McClatchy Washington Bureau (TNS)

WASHINGTON — President Barack Obama moved Wednesday to make it cheaper for first-time and younger buyers to take out a mortgage.

Obama lowered the mortgage-insurance premium for borrowers who have a down payment of just 3.5 percent of the home’s purchase price and finance the rest of the purchase with a loan backed by the Federal Housing Administration.

The reduction is expected to save the typical first-time homebuyer an average of $900 a year on the insurance, the White House said. The insurance is required because they’re financing so much of the purchase and the loans are riskier.

Existing homeowners who refinance into an FHA mortgage will see similar reductions, the White House said.

The White House estimated that the change will help 800,000 homeowners save on their mortgages and 250,000 new buyers save on mortgage payments over the next three years.

Obama, expected to highlight the lower-cost mortgages Thursday during a visit to Arizona, has been under pressure from the housing sector to help lower costs for borrowers seeking to buy with a low down payment — often younger buyers and first-time homebuyers, both a crucial link in home sales.

“We do not see first-time buyers getting into the marketplace. They don’t have a chance to get onto that first rung of housing,” said Chris Kutzkey, president of the California Association of Realtors.

While mortgage lending rates have been near record lows for several years, that has benefited the most creditworthy borrowers, who are often the wealthiest of homebuyers. The middle-income segment of the market, with higher debt loads, has faced tougher lending standards. Stagnant income has crimped its ability to put more down toward a home purchase.

“Mortgage underwriting standards have been overly stringent,” said Lawrence Yun, chief economist for the National Association of Realtors.

The premiums rose sharply after the financial collapse and have not come down even as the economy and the housing market have improved.

“It’s almost as if government is ripping off the consumers,” complained Yun, noting that premiums were raised to minimize risks to taxpayers of borrowers defaulting on government-backed loans. “But what has happened is they were punishing current borrowers for the sins of past mistakes. Current borrowers did not harm the market, but they are paying the excessively high premiums.”

One consequence is the shrinking number of new homeowners. Over the past four years, first-time homebuyers shrank as a percentage of all FHA loans — from 56 percent down to 39 percent, he said.

First-time buyers are a key part of the real estate chain, needed so existing homeowners can sell and purchase nicer, perhaps newly built homes.

“Future homebuyers are paying a higher expense than is necessary and that is having an effect on housing,” said David Stevens, president of the Mortgage Bankers Association.

In a related move, former North Carolina Democratic Rep. Mel Watt, the new head of the Federal Housing Finance Agency — the regulator of mortgage giants Fannie Mae and Freddie Mac — took steps in late December to make it possible for Fannie and Freddie to purchase loans that had down payments as low as 3 percent instead of the prior limit of 5 percent.

The move, similar to lowering FHA premiums, was designed to spur more first-time homebuying, boost the economy and compete with FHA loans.

“This sluggish recovery in housing has to change course for the economy to continue its growth trajectory,” Stevens said. “So in the short run, we would view premium reduction as a positive for the economy.”

House Financial Services Committee Chairman Jeb Hensarling (R-TX) and Senate Banking Committee Chairman Richard Shelby (R-AL) have in the past opposed lowering the premiums. They want to see less government involvement in housing finance and fear lower premiums mean taxpayers are still on the hook if a large number of loans go sour, as they did from 2007 to 2009.

The Obama administration has the power to lower premiums on its own and wouldn’t need legislation or congressional approval to act alone.

Another concern for would-be buyers and sellers is whether the long-standing mortgage-interest tax deduction might be removed or scaled back for the wealthy. Both of these ideas have been floated in discussions about how to fix the nation’s long-term fiscal imbalances.

“We really want to see no change to the tax incentives,” said Kutzkey of the California real estate group. “A lot of people are sitting on the fence. . . . They don’t know if they can move up.”

Economic conditions are increasingly favorable for a return to normalcy in housing. The economy is growing at a brisk pace, falling gasoline prices leave people with more spending power and hiring picked up sharply in 2014. A tight rental market also may soon push more people into considering home ownership.

“Apartment rents are rising at the highest pace in seven years, which means some of the renters . . . will seriously consider buying,” said Yun of the national real estate group.

AFP Photo/Doug Mills

Obama To Immigrants: ‘Come Out Of The Shadows’

By Kevin G. Hall and Lesley Clark, McClatchy Washington Bureau (TNS)

WASHINGTON — President Barack Obama moved Thursday to halt deportations for nearly 5 million undocumented immigrants, defying congressional Republicans who called his unilateral action an affront to the constitutional separation of powers.

Obama’s actions reversed his own statements that he did not have the power to make such sweeping changes without Congress. But aides said he had since learned he does have the authority, and that the refusal of the Republican-controlled House of Representatives to take up a bipartisan overhaul passed by the Senate left him no choice but to act unilaterally.

“To those members of Congress who question my authority to make our immigration system work better, or question the wisdom of me acting where Congress has failed, I have one answer,” Obama said during a prime-time statement from the White House East Room. “Pass a bill.”

Obama’s actions will suspend the threat of deportation for millions, including about 4.1 million who will be temporarily protected and allowed to apply for work permits provided they are parents, pass a background check and pay fees, and 270,000 who were brought to the country illegally as children.

At the same time, Obama announced plans to enhance security at the border and to shift focus inside the U.S. away from all undocumented immigrants to criminals.

“What I’m describing is accountability, a common-sense, middle-ground approach,” Obama said. “If you meet the criteria, you can come out of the shadows and get right with the law. If you’re a criminal, you’ll be deported.”

His moves were the most sweeping change in immigration policy arguably since Congress and Ronald Reagan agreed to changes in the 1980s. Since then, there’s been a wave of immigration into the U.S., legal and undocumented, that has changed the culture, divided the country and defied political solution.

Today there are as many as 13 million unauthorized immigrants in the U.S. Neither party believes it possible to deport them en masse, although many Republicans favor making it harder for them to continue working in the United States, which they argue could pressure them to leave on their own. Other legislative proposals have called for them to return home and reapply for authorized immigration.

Obama’s moves did not settle the political debate — and might have inflamed it.

“Instead of working together to fix our broken immigration system, the president says he’s acting on his own. That’s just not how our democracy works,” said House Speaker John Boehner (R-OH). “The president has said before that he’s ‘not king’ and he’s ‘not an emperor,’ but he’s sure acting like one. And he’s doing it a time when the American people want nothing more than for us to work together.”

“The president will come to regret the chapter history writes if he does move forward,” said Sen. Mitch McConnell (R-KY), soon to become the Senate majority leader.

But advocates heralded the move as overdue and just.

“I’ve been fighting for immigrant rights for over 30 years now, and this is the biggest victory our movement for immigration reform has seen in all that time,” said Frank Sharry, executive director of America’s Voice, which advocates for an immigration overhaul.

By acting on his own, Obama’s executive order could create uncertainty for immigrants because it is temporary and subject to the results of the 2016 presidential election. The next president could maintain the program or end it immediately with the same stroke of a pen as Obama.

“We can’t commit a future administration,” acknowledged a senior administration official who spoke on condition of anonymity as a matter of policy.

That sets up the 2016 election as a referendum on Obama’s decision, one in which candidates will be asked to either promise they will continue the policy or end it. If they say they will end it, they will be asked to say whether they would actually start deporting the millions of people and how they would do it. Administration officials expected that a president from either party would be unlikely to take away benefits that already have been granted.

The action represented a reversal for Obama, who under pressure from immigration advocates to stem deportations had insisted he couldn’t implement some of the same immigration reforms he will now sign.

In a Telemundo interview in September 2013, for example, Obama said that if he were to broaden the exception he made in 2012 for the children of undocumented immigrants, “then essentially, I would be ignoring the law in a way that I think would be very difficult to defend legally.”

White House press secretary Josh Earnest said earlier this week that Obama had since asked his team for a review of existing immigration law to see “what authority he did have and to ensure that we were sort of leaving no stone unturned.”

Obama and his aides insisted Thursday that Obama was doing what many of his predecessors had done.

“The actions I’m taking are not only lawful, they’re the kinds of actions taken by every single Republican president and every Democratic president for the past half-century,” he said.

Republicans accused Obama of exceeding his executive powers and warned that by not waiting until the new Republican-led Congress takes office in January, he is poisoning any chance for compromise.

The Senate passed a sweeping immigration plan in 2013, and Earnest said this week that Obama would prefer for the House to take it up. But administration officials said Boehner already has made it clear he won’t take up the issue.

“Why would we wait on someone who says he’s already made up his mind?” one administration official said.

Infuriated Republicans talked about finding ways to shut off funding to the program, but the officials noted that it runs not on congressional appropriations but on fees.

AFP Photo/Jim Bourg