A dramatic lobbying effort on Air Force One — led by key leaders in his own party — helped prod President Barack Obama to drop a much ballyhooed plan to tax college savings in an embarrassing retreat from a plan announced just a little more than a week ago.

And now Hill Republicans want to rub his nose in it by voting to expand the tax break.


Sources told POLITICO that the president was lobbied even on his own plane by House Minority Leader Nancy Pelosi. And a key call came from House Budget Committee ranking Democrat Chris Van Hollen while Obama flew from India to Saudi Arabia. He called Pelosi, who was in the air with the president hours ago, to complain.

Pelosi insisted that Obama drop the plan, scuttling what had been quickly labeled a disastrous policy that would hurt the middle class.

“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 White House said.

The president had proposed taxing college savings accounts called 529 plans, which experts say benefit mostly upper middle class and wealthier families that can afford to save for their kid’s college education. The tax hike would have been part of his budget proposal, scheduled for release Monday.

It was part of a much bigger proposal to shift taxes to the wealthy — including by boosting capital gains levies — and shift benefits to lower-income individuals.

But opposition mounted to this particular element nearly immediately, first from conservatives and then from mainstream groups and some Democrats.

On Tuesday, a Democratic aide said Van Hollen “made his concerns about the issue known,” and called Pelosi on Air Force One as she flew with the president.

The White House acted quickly and killed the plan. Obama’s other tax and education proposals, however, remain intact. (Obama’s decision to drop the proposal was first reported by The New York Times.)

A legislative aide to one of the authors of a bipartisan bill to expand tax savings for 529s said House leaders’ “plan is for the bill to be brought to the floor in late February for a vote,” giving Republicans another chance to flaunt the small tax victory.

Republicans had been jeering the White House over the idea from the start, with anti-tax crusader Grover Norquist calling it a plan to hike “taxes on middle-class families trying to save for their children’s education.”

The criticism kept coming. House Speaker John Boehner issued a release Monday quoting state treasurers, local financial planners and other experts around the country saying the proposal would hurt average Joes.

On Tuesday, Boehner demanded the proposal be withdrawn: “It’s another example of his outdated, top-down approach when our focus ought to be on helping all Americans.”

Democrats had also started to fuss. Rep. Ron Kind, a moderate Wisconsin Democrat on the Ways and Means panel, joined with Republican Kansas Rep. Lynn Jenkins to propose a bill to expand and strengthen 529s — taking the break in the exact opposite direction as his party leader. That’s the legislation expected on the floor next month.

Capitol Hill Republicans cheered.

“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 House Ways and Means Chairman Paul Ryan (R-Wis.). “He should work with Republicans to pass Rep. Lynn Jenkins’ plan to strengthen and expand these important accounts.”

But not everyone rejoiced. Former White House economic adviser Jared Bernstein said the White House might have been “blindsided” by the criticism of tax plan — especially since it is such a small part of a proposal that will boost college access for lower-income individuals.

He didn’t consider it hugely controversial and criticized the White House for pulling back so quickly, suggesting they might have tweaked it to allow lower income individuals to keep using the accounts.

“If you think it’s a good idea, defend it,” he said.

Some left-leaning groups had backed nixing the savings vehicle and said the perception that it was widely used by the middle class led to its demise.

“Wrongly, people were saying it would hurt the middle class. But that is not where the money is being held,” said Kim Rueben with the Urban Institute, who noted just 3 percent of families use the 529 and the vast majority make more than $200,000 a year.

Iowa Republican Sen. Chuck Grassley, former chairman of the tax-writing Senate Finance Committee, said the average amount saved in such plans by Iowa families is less than $20,000.

“It didn’t make sense to attack a program that encourages savings,” Grassley said in a statement. “The tax code encourages all kinds of behavior, and saving for college is usually something everybody supports. The president’s dropping his misguided plan is a victory for common sense.”

Kim Dixon, John Bresnahan and Lauren French contributed to this report.