Policy Matters findings: Letting college savings plans be used for private K-12 tuition reduces revenue, advantages wealthy

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Posted February 19, 2018 in

Author: Victoria Jackson

The new federal tax law gives wealthy Americans who send their kids to private school a tax cut. Meanwhile, the Trump Administration and congressional Republicans propose cutting funding for public education. A new brief released today by Policy Matters Ohio argues that as Ohio lawmakers work to align state law with changes to the federal tax code, they should protect Ohio’s public schools by preventing contributions to the state’s college savings plan from being used to pay for tuition at private primary and secondary schools.

Tax-advantaged college savings and investment accounts, known as 529 plans, primarily benefit wealthy Americans because lower- and middle-income families can’t save as much for college. In 2015, Ohio taxpayers with incomes of $200,000 or more accounted for just 3.9 percent of all state tax returns but took 28 percent of deductions through CollegeAdvantage, Ohio’s 529 plan, according to the brief.

“Most Ohioans can’t take advantage of a college savings plan, and if the state’s 529 plan expands to include parochial and private schools, that will benefit the wealthy as well,” said Policy Matters researcher Victoria Jackson. “This change is not about education, it’s about cutting taxes for the very wealthy.”

The tax deduction for 529 plans is estimated to cost the state about $22 million in Fiscal Year 2019.To help more Ohioans afford college, that money would be better used to support the need-based aid program, the Ohio College Opportunity Grant.

In Ohio, 529 plans are still restricted to higher education expenses. If state lawmakers want to include private K-12 schools, they will have to do so through the federal tax conformity bill, Senate Bill 22. It’s being crafted in the state legislature and details aren’t yet public.

“If Ohio allows these plans to pay for K-12 tuition, it will be at the expense of public education,” Jackson said. “Budget cuts, voucher programs and charters have already cut Ohio’s schools to the bone. Our public schools can’t afford more losses, and neither can our children.”

Download 529brieffeb2018.pdf

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