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House Bill 185

House Bill 185

Wayne Hoffman
February 22, 2017

Bill description: This measure would allow a taxpayer to increase the amount saved in a 529 account from $4,000 to $6,000 and take a deduction based on that savings.

Rating: -1

Analyst note: In 2000, the Idaho Legislature and governor authorized an income tax deduction for saving money in an eligible 529 college savings account. A 529 account is a government-sanctioned savings account which can only be used for specific higher education-related purposes. It’s important to understand an Idaho taxpayer can only enjoy the deduction under state law if the participant is enrolled in Idaho’s program. A saver who is enrolled in any other program would not be eligible for the tax deduction.  In this way the government alters normal free market interactions by favoring taxpayers who participate in its program.

Does it increase government redistribution of wealth?

Tax incentives like these require taxpayers to subsidize the economic, savings and tax decisions of others. A taxpayer who does not have the money to save for college is, in effect, paying a higher effective tax rate than the college saver. The results are a redistribution of wealth benefiting those who have the capacity to save more. Idahoans and Americans, generally, should prefer a tax code that is simple, does not reward taxpayers for the government’s prefered behaviors, and does not result in some taxpayers paying more than others when they fail to make what the government determines to be the “right” choice. (-1)

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