BILL ANALYSIS Ó
AB 2726
Page 1
Date of Hearing: May 18, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2726 (McCarty) - As Introduced February 19, 2016
-----------------------------------------------------------------
|Policy | Revenue and Taxation |Vote:| |
|Committee: | | | |
| | | | |
| | | | |
-----------------------------------------------------------------
Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill allows a credit under the Personal Income Tax (PIT)
Law for contributions made to one or more ScholarShare account.
Specifically, this bill:
1)Allows a nonrefundable credit for each taxable year beginning
on or after January 1, 2016, and before January 1, 2021, in an
amount equal to the lesser of 20% of monetary contributions
made to one or more ScholarShare accounts or $500.
2)Limits the credit to taxpayers based on income limits and tax
AB 2726
Page 2
filing status. Qualified taxpayers are those with adjusted
gross incomes of either:
a) $75,000 or less if they are single or married and filing
separately filing.
b) $150,000 or less if they file a head of household,
surviving spouse, or married filing jointly.
1)Establishes performance metrics and data collection and
reporting requirements.
FISCAL EFFECT:
Annual GF revenue loss of $23 million, $18 million, and $20
million in FY 2016-17, FY 2017-18, and FY 2018-19, respectively.
COMMENTS:
1)Purpose. According to supporters, this bill will provide a tax
incentive for families who save for college. The author argues
that incentivizing families to establish college savings
accounts will ensure obtaining a higher education degree is an
achievable goal without burdening students with tremendous
amounts of debt.
2)ScholarShare 529 College Savings Plans: ScholarShare serves as
California's state-sponsored IRC Section 529 qualified tuition
program. The savings accounts enabled by ScholarShare provide
families with a valuable tool that offers a diverse set of
AB 2726
Page 3
investment options, tax-deferred growth, and withdrawals free
from state and federal taxes when used for qualified higher
education expenses such as tuition and fees, books, certain
room and board costs, computer equipment, and other required
supplies.
3)Who uses 529 plans? According to the Federal Reserve,
high-income households are most likely to use a 529 college
savings plan. In 2013, 16% of households above the 95th
percentile of the income distribution had a 529 savings
account compared to just 0.3% of households below the 50th
percentile of the income distribution. Because the proposed
tax credit is nonrefundable and is only available to
households with income tax liability, it may not reach
lower-income households who would most benefit.
4)Incentivizing behavior or rewarding past behavior? Under AB
2726, the tax credit would be provided for ScholarShare
contributions made after January 1, 2016, which means that
households that are already contributing to ScholarShare
accounts will receive a credit. Since the intent of the bill
is to incentive households to save for college, the Committee
may wish to consider making the credit operative beginning on
January 1, 2017.
5)Prior legislation. AB 17 (Bonilla), in 2015, would have
created a credit for contributions to a ScholarShare account.
AB 17 was held in this committee's Suspense file.
Analysis Prepared by:Luke Reidenbach / APPR. / (916)
319-2081
AB 2726
Page 4