WASHINGTON, D.C. -- Shortly after Senator Susan Collins sent a letter to the Senate Finance Committee and spoke from the Senate floor today about the harmful changes proposed to the 529 College Savings Plan, it was reported that the Obama Administration will drop a proposal to tax the earnings of the popular college savings plan.
In a statement tonight, Senator Collins said, “This is welcome news for the countless hardworking parents who make sacrifices to save and provide for their children’s futures. The President’s proposal to tax the earnings of 529 College Savings Plan accounts never made sense. It would have lead to more student loan debt and undermined the very values that we should be promoting – families making sacrifices in order to better provide for their children tomorrow.”
The full text of the letter Senator Collins sent to leaders of the Senate Finance Committee can be seen below:
January 27, 2015
The Honorable Orrin G. Hatch The Honorable Ron Wyden
Chairman Ranking Member
Senate Committee on Finance Senate Committee on Finance
219 Dirksen Senate Office Building 219 Dirksen Senate Office Building
Washington, D.C. 20510 Washington, D.C. 20510
Dear Chairman Hatch and Ranking Member Wyden:
In President Obama’s State of the Union Address last week, he outlined an agenda focused on what he called “middle-class economics,” which he described as “providing Americans with the tools they need to go as far as their effort and their dreams will take them.” I agree that our country thrives when hard-working Americans prosper. That is why I am perplexed at the President’s proposal to tax the earnings of 529 College Savings Plan accounts.
Rather than help American families meet the onerous cost of a college education, this new tax would greatly diminish the benefits of a law that is helping millions of parents plan for their children’s futures. The President’s proposal undermines the very values that we should be promoting – families making sacrifices today in order to better provide for their children tomorrow. The President’s plan would also lead to more student loan debt for many young people at a time when rising debt is a major concern.
One of the first questions new parents ask themselves is how will they be able to pay for their child’s college education. For the past 14 years, 529 accounts have been an important part of the answer, allowing parents to save for their children’s education in tax-advantaged accounts. Regular, affordable contributions, made with after-tax dollars from their paychecks, grow over time. When the college years start, those savings, and the earnings from their investment, can be withdrawn tax-free for education expenses. The small sacrifices made from payday to payday can have an enormous impact, making real the dream of higher education.
Parents also know that receiving a college degree greatly improves their child’s future earnings potential. According to data compiled by the United States Census Bureau in 2011, individuals with college degrees earn approximately $1 million more over the course of their careers than do workers with high school diplomas. Census data also show that people with higher levels of education are more likely to be employed full-time, year-round. College graduates also tend to have access to more specialized jobs that, in turn, yield higher wages.
Data from the College Savings Foundation show that the average value of a 529 account is $19,774, countering the assertion that 529 plans disproportionately benefit very high-income families. Additionally, the average regular electronic contribution, such as that from paycheck withholding, is just $175 per month. That is clearly more in line with hard-working families trying to make ends meet than with affluent families who enjoy significant disposable income.
My home state provides a great example of the benefits of 529 plans. Thousands of Maine families established these accounts after the law was changed in 2001 to allow tax-free withdrawals for college expenses. In 2008, the Harold Alfond Foundation, which was established by one of Maine’s greatest philanthropists, created the Alfond College Challenge. Today, this program provides a $500 contribution to the college savings account of every baby born in Maine. To date, some 23,000 Maine families have used this generous gift to begin planning for the future education of their children.
All told, 38,000 Maine residents now have 529 College Savings Plan accounts, with combined assets of $160 million. Nationally, nearly 12 million Americans have 529 College Savings Plan accounts, with combined assets of $244 billion.
The 529 College Savings Plan program channels the virtue of saving into the tangible benefit of helping hard-working middle-income American families save for their children’s college education. Changing the tax rules for 529 accounts would break a promise to these families. I urge you to reject the President’s proposal and to save the 529 College Savings Plan program.