Use Tax-Advantaged Savings to Expand School Choice

The Senate tax-reform bill should extend Section 529 college-savings accounts to K–12 and apprenticeships.

The proposed Tax Cuts and Jobs Act currently making its way through Congress offers a unique opportunity to expand school choice in all 50 states — that is, unless the Senate blows the opportunity.

The House version of tax reform that passed on November 16 includes an expansion of Section 529 college-savings plans for parents to pay for K–12 education expenses and for apprenticeship programs for up to $10,000 per year. The Trump administration has signaled its support. This proposal also contains a provision that parents can open such savings plans before the child is born.

The Senate tax-reform plan, which passed the Finance Committee the same day as the House passed its plan, does not contain the House provision to expand 529s, but it does include the change for unborn children.

According to the Joint Committee on Taxation, the House proposal would reduce federal revenue by $600 million cumulatively over ten years. In the federal budget universe, this is a paltry sum.

The Senate’s failure thus far to include the 529 expansion to K–12 education and apprenticeships necessitates an amendment to its bill as it proceeds to the Senate floor for a final vote, which could come as early as the last week in November.

College-savings plans have empowered parents to save for their children’s college expenses by allowing earnings to grow tax-free. In addition, many states allow contributions to such plans to be deductible on state income taxes.

Not surprisingly, these 529 plans have been increasing in popularity since their introduction 20 years ago, in particular with working and middle-class families. More than three-quarters of the existing plans belong to families below $150,000 in household income. At present, more than 13 million 529 accounts exist, and they contain approximately $300 billion in assets.

Clearly, as 529 plans are a sensible way to help parents save for their children’s college education, it makes perfect sense to expand this successful approach to K–12 education and apprenticeships. Many parents need and desire educational options to provide the best, most suitable education for their children before college. Moreover, including apprenticeship programs would encourage a career path in lieu of traditional (and expensive) college for potentially millions of Americans.

As 529 plans are a sensible way to help parents save for their children’s college education, it makes perfect sense to expand this successful approach to K–12 education and apprenticeships.

Congress created 529 college-savings plans in 1996 as part of the Small Business Job Protection Act, which passed by an overwhelming bipartisan vote. Among its supporters were many members of today’s congressional Democratic leadership: Nancy Pelosi, Steny Hoyer, James Clyburn, Chuck Schumer, Dick Durbin, and Ron Wyden — and even former vice president and now elder statesman Joe Biden (then a senator).

Lest any of them make the excuse that the original vote for 529 plans was about saving only for higher-education expenses, the very same present-day Democratic leaders also voted the following year for the creation of Coverdell savings accounts for K–12 expenses, as part of an even more lopsided bipartisan vote for the 1997 Revenue Reconciliation Act. (Unfortunately, Coverdell accounts have a maximum annual contribution of $2,000 per child.)

The teachers’ unions, as a matter of course, selfishly oppose the expansion of 529 plans to K–12 education, as they understand full well their potential to help parents access school choice for their children. This should be reason enough for Senate Republicans to adopt the House provision.

Democrats, too, including so many of the same people who supported these policies in the 1990s, should get beyond the teachers’ unions’ vise-grip and support a sensible savings vehicle for working and middle-class Americans to improve their children’s education.

If Democrats support tax incentives for parents to save for their children’s college, why not for K–12 education? If Coverdell accounts were acceptable 20 years ago, they should be acceptable (in 529 form) today.

Expanding 529 savings plans would build on a successful and popular tax-saving program, expand school choice for children, and empower working and middle-class parents by giving them more educational options for their children (which wealthy parents already have).

Expanding 529s would not involve the Department of Education, nor would it expand government. It will simplify the federal tax code by making Coverdell savings accounts obsolete.

Passing a 529 expansion to K–12 education and to apprenticeship programs is not the finale in the struggle to expand school choice. That struggle will continue in the years ahead, as there is much more than can be done to empower families to liberate children from low-quality schools.

A big step forward on school choice is overdue from Washington, and Senate Republicans should not miss the opportunity before them. They need to expand 529 programs to K–12 education and apprenticeships now.


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— Peter Murphy is the vice president for policy at the Invest in Education Foundation.


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