This morning, the State House News Service published an article detailing legislation that emerged last month from the Joint Committee on Revenue that creates a tax deduction for families saving for college in Massachusetts.
AICUM has long supported a state-level college savings tax incentive that helps families save for their children’s futures. The vast majority of income tax-levying states offer such incentives – and Massachusetts is one of only eight outliers.
We are hopeful that the Legislature continues this momentum for the betterment of families across the state.
State House News Service:
Supporters See Favorable Conditions to Pass College Savings Tax Incentive
By Michael Norton
In the closing days of the 2014 race for governor, Charlie Baker was asked during a televised debate which of Martha Coakley’s campaign ideas he wished was his first. He replied that it was a college tuition savings tax deduction.
It’s still a long way from his desk in the State House’s Corner Office, but a bill targeting the college affordability crisis by delivering a new incentive for families to save has cleared committee with a unanimous bipartisan stamp of approval and comes this year with a new plan to cover most of its costs to the state.
The idea is also paired with favorable polling. In an October 2015 MassInsight survey conducted by Opinion Dynamics, 76 percent of respondents strongly or somewhat favored a new income tax deduction for college savings accounts, with 24 percent somewhat or strongly opposed.
Supporters of the bill (S 1468) say 42 states have income taxes and Massachusetts is among only eight of those states that do not have a tax incentive to encourage families to make contributions into a college savings program, sometimes known as 529 plans. As a result, contributions must be made with after-tax income and, according to the bill’s sponsor Lowell Democrat Sen. Eileen Donoghue, many families with plans don’t contribute, nullifying their value.
The redrafted bill endorsed by the Legislature’s Committee on Revenue on a 12-0 vote features a $1,000 annual deduction for single filers and a $2,000 deduction for joint filers, down substantially from $5,000 and $10,000 limits featured in Donoghue’s original bill.
Using the $1,000 and $2,000 thresholds, the bill would cost state government about $8.2 million, but it includes language limiting an existing tax deduction for college tuition payments to Massachusetts residents only. That move would offset all but about $1.2 million in costs while helping families to start saving earlier for college, supporters said.
According to the Association of Independent Colleges and Universities of Massachusetts (AICUM), tax deductions for contributions to college savings accounts range from $500 to $1,000 in Rhode Island and $2,500 to $5,000 in North Carolina to $5,000 to $10,000 in Connecticut and New York and $10,000 to $20,000 in Illinois and Oklahoma.
The bill’s largest obstacle may be the Legislature’s recent aversion to embarking on tax policy debates. Aside from expanding the state’s earned income tax credit, Beacon Hill lawmakers and Gov. Baker have not teamed up on major tax policy changes since Baker took office in January 2015. Baker and House Speaker Robert DeLeo ruled out new or higher taxes in this spring’s state budget deliberations.
But like Donoghue, Revenue Committee Co-chairman Sen. Michael Rodrigues said the college savings deduction may draw support this session because it addresses a problem that’s attracted increasing national attention and helps many families who the senators said are often not often the beneficiaries of tax policy changes.
“This is one I think that does make the most sense,” Rodrigues told the News Service, adding, “It really helps the middle class and they found a way to pay for it.”
According to AICUM, the personal income tax college tuition deduction allows for a deduction for tuition payments to a two- or four-year college if tuition costs exceed 25 percent of the filer’s Massachusetts adjusted gross income. The deduction is open to anyone who derives Massachusetts income, resident or non-resident, and is not limited to payments to colleges or universities in Massachusetts.
Nearly 13 percent of the deduction’s claimants in tax year 2013 were from out of state, according to a Department of Revenue analysis sought by supporters of the college savings deduction bill. The tuition deduction’s overall cost to the state rose to $54.2 million in fiscal 2016, up from $35.9 million in fiscal 2013.
The bill authorizes the college savings tax deduction starting in 2017 and the deductions would expire after 2021 unless reauthorized by lawmakers. In states with similar deductions, they are largely claimed by families earning $150,000 or less per year, Donoghue said.
“This is a solid benefit for the middle class and I think there are very few out there for the middle class, to be candid,” Donoghue said. “I do think people are more aware of the student debt crisis. This is one way to incentivize savings earlier on.”
According to AICUM, Vermont introduced a $2,500 tax incentive in 2006 and immediately saw a 34 percent increase in the number of families creating college savings accounts. Apart from New Hampshire, which doesn’t have an income tax, all of the states surrounding Massachusetts offer a college savings tax deduction.
“College savings programs have proven to be an essential piece of the college affordability puzzle, and it’s time that Massachusetts catches up with the rest of the country in trying to help families save for their children’s futures,” AICUM President Richard Doherty said in a statement after the bill was endorsed by the Revenue Committee.
The college savings tax deduction bill was formerly sponsored by House Ways and Means Committee Chairman Rep. Brian Dempsey, whose panel has custody of the bill’s latest version.
House Speaker Robert DeLeo is scheduled Thursday to participate in a forum organized by AICUM for legislators to hear from college students benefiting from need-based college aid funding.
It’s the first time the bill has received a favorable Revenue Committee report, and supporters also see it as a way to deliver on the independent recommendations of the Subcommittee on Student Loan and Debt and the Special Commission on Educational Scholarships.
Unlike some other legislative committees, the Revenue Committee released a breakdown of how its members voted on the bill. Voting in favor of the legislation were Rodrigues and Sens. James Timilty, Eric Lesser, Ryan Fattman and Reps. Jay Kaufman, Thomas Stanley, Denise Provost, James Dwyer, Alan Silvia, Randy Hunt and Shawn Dooley