There isn’t much new and noteworthy in the policymaking world this week, so I thought I’d take this opportunity to tell you all a little legislative story you missed out on a few months ago. It’s instructive in seeing how Congress can, but often doesn’t work.
The story starts with a note I got from a local grandfather. In it, he explained that he has seven grandchildren. As a man given to planning ahead, he’d set up so-called “529” college savings plans for each of them. If you’re unfamiliar with them, “529” refers to a section of the tax code which allows deferred contributions for qualifying educational expenses – books, tuition, etc. It’s a great program and very popular.
(As an aside, you may recall that the President called for ending the 529 plans in his State of the Union address back in January. It was inexplicable and both parties pushed back on that immediately. Another story for another day.)
For now, the long and the short of it is that our grandfather faced a dilemma on the “qualified education expense” front.
Of the seven grandchildren, only five ended up attending college. A few of the five college students ended up incurring some student debt when the 529 accounts didn’t cover everything. As for the 529 accounts for the two kids who didn’t attend, they sat there unused. The grandfather, being a prudent financial planner said, “let’s put the unused money toward lowering the student loans of the other kids”.
Alas, the tax code wouldn’t permit it. Not only would he have to pay the taxes on the money in the account, the IRS would also charge a 10 percent penalty for using the money for an “unqualified” expense.
As many of you know (and quite personally for some of you), the student debt levels in this country are reaching catastrophic proportions. Americans now owe an estimated $1.2 trillion in student loans. For perspective, Canada’s entire GDP is only about $1.8 trillion. It’s a lot of money and an immense burden on young people trying to build a future.
Given that fact, a reasonable public policy question to ask (and the grandfather did in his note to me) is why not amend the 529 program to permit paying down student loans as a “qualified educational expense”?
I didn’t have a good answer for that, so we set about looking for a legislative solution. Pretty quickly, some of the folks who work closely on education policy raised the concern that doing so could have the unintended effect of actually incentivizing students to borrow more. Obviously, that’s not what we’re after.
But what about the unused accounts in the situation described above? Well, it seemed like a reasonable compromise would be to remove only the penalty, but not the basic taxes. In other words, we don’t want to create a tax incentive for taking out more student loans, but we also don’t want to create a disincentive for paying down loans either.
As luck would have it, just as we were pulling the final details together, a relevant bill was moving across the House floor. This would make a great amendment and so we went for it. The answer that came back was pretty shocking, frankly.
Tax bills, which fall under the jurisdiction of the Ways and Means Committee, are traditionally not amended on the floor by the full House – only the Ways and Means Committee gets to amend them. Their argument is that they need to do the due diligence to determine the costs, etc. That could be said of any bill on any issue in any committee. We make a judgment call on the scale of things, case by case. That’s the way it works for most committees.
I bring all of this up for a few reasons:
A) You should never hesitate to bring up an idea with your representatives. You never know when it might turn into law.
B) Frequently, ideas sound great at first, but there are always unintended consequences. Consequently, it’s always a good idea not to “group think” these things. Get some other smart people to check your policy assumptions before you go charging ahead trying to change the world.
C) There are many things about our legislative system which make it the best system in the world. There are also some other things that are inexplicably dumb. They got that way over time mostly to protect the entrenched power of those who hold certain perches in Congress. The Appropriations Committee is another great example of this. The details of how specific dollars are intended to be spent appear not in the spending bill itself, but rather in the “committee report” which accompanies the bill. The rub, of course, is that you can amend the broad spending categories in the bill, but you can’t amend the specific, programmatic detail that appears in the committee report. Only committee members get a crack at that.
This is the kind of stuff they don’t typically tell us in our 8th grade civics classes, but it’s very real nonetheless. Never underestimate the relevance of committee assignments, the importance of who holds leadership positions, and the power of tradition in a place like Congress. It may seem very inside-baseball and it is, but if you want to make policy changes and you’re not ideally placed, it’s almost always a question of sneaking in through the side door and rarely a cakewalk through the front.
s for our grandfather’s dilemma… I’m in the midst of checking side windows and doors at the Ways and Means Committee as we speak. They definitely left a few unlocked… The Chairman (Paul Ryan) and I have spoken. He’s supportive and we’re going to find a way to make it work.
Congressman Rich Nugent represents The Villages in the U.S. House of Representatives.