Grassley provision benefits 529 plans

Where we stand. Changes to the college savings plans represent a common sense approach, thanks to Iowa's senior senator.

Good news for parents looking to sock something away for the kids` tuition fund: 529 college savings plans are likely to get even better.

The proposed budget under consideration by the Senate this week includes language from Sen. Chuck Grassley, R-Iowa, to offer more flexibility in what expenses the plans could cover. While the provision isn`t binding, it sends a strong message likely to be used in the budget document and lets parents know Grassley and others are in the corner of 529s.

This is a positive swing from the beginning of this year when President Barack Obama proposed rolling back the tax exemption for 529s. That idea struck a nerve with parents working hard to keep up with rising costs of higher education, and the White House soon did an about-face on the idea.

Grassley took that change of course a step further. He added wording that would allow greater flexibility as to when the tax-free savings could be used - like on the purchase of a computer, for instance. It only makes sense that 529s keep up with today`s student, and a computer is certainly a necessary educational expense.

The provision also gets rid of an outdated rule that increases paperwork and costs on plan administrators. Finally, it offers relief from taxes and penalties incurred when a student is forced to withdraw from school for illness or other reasons. The way the law is now written, refunds under any circumstances are subject to immediate taxation and a 10 percent tax penalty.

All those things sound like common sense changes. We`ve come to expect nothing less from Grassley. Section 529 plans are a great savings opportunity for parents. Thanks to Grassley, the plans will likely be even more effective.

Anyone attempting to simplify the tax code, with its array of potential deductions that has most Americans running for the nearest tax preparer`s office, deserves an "atta boy" in our book.

With a federal tax code in which the instructions for the "easy" form are too many pages, and state taxes that aren`t much easier to understand, reform should be a top priority.

In fact, there was buzz about tax reform at the start of this session in the Iowa Legislature. So when Republicans on a statehouse subcommittee floated a flat tax bill, it seemed to be perhaps the start of something.

The bill would allow Iowans to choose between the current structure with multiple deductions and a flat tax rate of 5 percent with minimal deductions. From a simplicity standpoint, that sounds like a great idea. Similar legislation that passed the House in 2013 included revenue analysis which noted the average taxpayer would save $800. That sounds swell, too. Until you get to the part about what it would cost the state: Somewhere in the neighborhood of $400 million.

That just won`t work.

Iowa`s personal income tax system includes nine brackets with rates that go up to 8.98 percent. That makes the state fifth-highest among states levying individual income taxes. Only people paying less than $13,635 are paying a tax rate less than 5 percent. Even without a lot of deductions, a 5 percent flat tax sounds a little low.

Supporters say improving the tax rate would over time spur economic growth and create revenue. That may be, but a tax proposal that would take $400 million out of state coffers is too steep.

We like the idea of a flat tax and a simpler structure. But any reform proposal has to come with a more manageable price tag.

A plan to rein in abusive payday loan businesses could be close at hand. The Consumer Financial Protection Bureau floated a proposal last week that would inject the predatory loan business with some strict guidelines. Among them is the idea of giving lenders options: Either confirm that borrowers actually have the ability to pay or accept caps and "cooling off" periods between loans.

After years of predatory practices enticing the most vulnerable consumers, this a welcome sign.

The Center for Responsible Lending reports payday lending fees cost American borrowers $3.4 billion every year. In the state of Iowa, individuals paid more than $37 million in fees in 2012 to the 218 payday lenders operating in the state. Unlike banks and credit unions, payday loan operations rarely consider a consumer`s ability to repay the loan.

There are a series of steps before the new rules would be adopted. Here`s hoping that process moves quickly. Iowa lawmakers have been unable to pass legislation to address the issue, despite years of discussion.

 

http://www.thonline.com/news/opinion/article_b7552eb5-844f-58e0-8662-463c5b0a0ae0.html

Editorials reflect the consensus of the TH Media Editorial Board.

 

-30-