Income Taxes: Check the Box for College Savings
by Anne Kim and Carl Rist
As a federal taxpayer, you’ve no doubt noticed the $3 “check-off ” for the Presidential Election Campaign Fund-and you probably skipped it. In 2011, just 6.4 percent of American taxpayers “checked the box.”
Originally created in the 1970s to support public financing for presidential campaigns, the Fund now seems increasingly anachronistic and insignificant. After the Supreme Court opened the floodgates to unlimited campaign spending in its Citizens United decision, private political spending has skyrocketed. Neither President Barack Obama nor Republican challenger Mitt Romney has opted for public financing, and this year’s presidential race is expected to cost an all-time high of $2.5 billion, says the Center for Responsive Politics.
But while the presidential campaign fund may have lost its relevance, the $3 check-off remains an effective, easy way to raise money for a dedicated purpose. It’s simple to administer. It captures people at a time when they have to interact with government anyway. And it provides taxpayers with something rare-a chance to choose where their tax money goes.
What if this money went toward something more Americans would get excited about-such as helping kids save for college?
Instead of the Presidential Election Campaign Fund, taxpayers should get the option of sending $3 to a new fund-one dedicated to providing a dollar-for-dollar match for young people saving for college. In particular, this new fund could help support special “children’s savings accounts” increasingly being created nationwide to help lower-and middle-income children save for college.
Under these programs, children typically receive an initial deposit in an account and a 1:1 match of savings they contribute, up to a specified maximum (e.g., $500). In the pioneering Kindergarten to College program in San Francisco, every kindergartener in the city gets $50 to “seed” their savings account ($100 for those on free or reduced lunches), followed by additional incentives to save. Research finds that children with savings are not only more likely to expect to go to college, they are also six times more likely to attend than kids without savings.
A college savings match fund—in which children and their families would contribute up to $500 and the $3 contribution from tax returns would generate matching funds—could ease a major source of financial anxiety for today’s families. According to Pew, 71 percent of Americans say it’s harder to pay for college today than it was a generation ago; 75 percent say college is now too expensive for most Americans to afford. Meanwhile, a global economy demands that young people go to college if they are to succeed in the middle class, let alone compete against their peers in China, India and other aggressively developing countries.
Even a relatively low participation rate in a college savings check-off could generate significant revenues. Despite last year’s low participation, the Presidential Election Campaign Fund collected nearly $40 million. If participation levels reach what they did in the early 1970s-young savers could benefit to the tune of hundreds of millions of dollars.
Without doubt, American families could use help to keep up with soaring college costs. Many states now offer 529 college savings plans, which provide an implicit savings match through tax preferred growth of savings and, in some cases, tax deductions for contributions. These accounts, however, work best for middle- and higher-income households, while a college savings match could provide equal benefit to low- and moderate-income households as well.
While two-thirds of parents are actively saving for college, a survey by Fidelity Investments finds most parents are also far behind in their ability to save enough to meet costs. According to Fidelity, the typical family is on track to meet just 30 percent of the expected cost of college.
Helping students save for college could also reduce the growing burden of student debt. The Federal Reserve Bank of New York says the average student debt burden in the first quarter of 2012 was $24,301, while the overall balance owed by students was a whopping $902 billion. Indeed, a survey by the think-tank Demos found that 13 percent of households whose credit card balances included college costs reported leaving school to address these debts.
Perhaps most importantly, letting taxpayers check the box for college savings would bypass the partisan paralysis that has stalled Washington’s efforts to help students and their families. Instead of watching Congress squabble over support college students deserve, let Americans act on their own. Many states already do this by sponsoring check-off programs on state tax returns to benefit veterans or seniors or to fund disease research.
While a match for college savings can’t erase the growing burden of college costs and debt, it can help put children on the path toward saving earlier, saving more, and raising their college-going aspirations. With the help of this new fund, every child in America might someday have a savings account to help ensure a brighter future-and all for just $3 per taxpayer.