The Daily Signal has an analysis of the Congressional GOP’s tax reform proposal that includes this hidden gem:
The GOP tax plan would take the long-overdue step of allowing parents to use elementary and secondary education expenses under 529 savings plans. This could help parents across the country access more education options for their children.
A separate program — Coverdell savings accounts — already exists, but it is capped at $2,000 in contributions per year, and families are taxed on the income that they then put into the program. The 529 approach would raise the cap to $10,000 that could ultimately be used tax free for school all the way through college and beyond. Most states also allow credits or deductions from income taxes for money contributed to 529s.
In other words, the change would move a program that, realistically, provides limited benefit to families that utilize private schools into one that could remove tax from a big chunk of the income that winds up in education expenses. In short, that ultimately means a discount on education.
Reading up on the plan, however, raises a more fundamental point. This whole system of giving some family spending preferential treatment through tax reduction is more complicated than families that don’t have financial advisors will necessarily pursue. That’s more true in the case of programs involving investments, because they require the additional step of investing money through an account.
Of course, the investment-market lobby wouldn’t be very keen on the idea, but why not simply create a program that gives families the money for education directly? The policy could easily cap each family’s voucher (or automatic education savings account contribution) at some amount of its taxes paid, but the math and the money flow would be more straightforward for the average American.