BILL ANALYSIS �
AB 1956
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Date of Hearing: May 21, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 1956 ( Bonilla) - As Amended: May 15, 2014
Policy Committee: Revenue &
Taxation Vote: 7-1
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill provides a refundable tax credit, beginning on or
after January 1, 2015 and before January 1, 2020, in the amount
of 20% of the contributions made to a qualified tuition program,
not to exceed $500 per return. Specifically, this bill:
1)Provides that the portion of the credit that is in excess of
tax liability shall, upon an appropriation by the Legislature,
be paid to the qualified taxpayer.
2)Defines a "qualified tuition program" in the same manner as a
qualified tuition program under Internal Revenue Code (IRC)
Section 529.
3)Defines a "qualified taxpayer" as an individual who, on behalf
of a beneficiary, contributes money to a qualified tuition
program for which the individual is the account owner and has
an adjusted gross income of either:
a) $100,000 or less if the qualified taxpayer files as
single, married filing separately, or domestic registered
partner filing separately; or,
b) $200,000 or less if the qualified taxpayer files as head
of household, surviving spouse, married filing jointly, or
domestic partner filing jointly.
4)Provides that when a qualified taxpayer receives a
nonqualified withdrawal, in addition to any other tax, an
additional tax shall be imposed in an amount that is the
lesser of 10% of the nonqualified withdrawal or the total
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amount of credits received for the taxable year and for all
prior taxable years that a qualified taxpayer was allowed a
credit pursuant to this bill.
FISCAL EFFECT
1)Potentially substantial costs to the Franchise Tax Board (FTB)
to establish a refundable credit program and to develop
processes and regulations to administer the program.
2)Given this is a refundable credit, substantial GF revenue
decreases, likely in the hundreds of millions of dollars
annually, over the duration of the program.
COMMENTS
1) Purpose. According to the author, children with college
savings accounts are seven times more likely to attend
college. This bill is intended to increase the number of
families saving for college as well as increase the amount of
money being saved. The author claims California is one of
only seven states with personal income taxes that does not
offer tax-advantaged savings with a 529 plan.
Proponents further argue that student debt continues to rise
and places a damper on the state's overall economic activity
because debt holders have less disposable income with which to
make other purchases. Proponents claim the bill will lead to
a decrease in student debt in California by more than $600
million over the next 20 years.
2) Tax Incentives vs Investment in Education. Opponents argue
K-12 education has endured budget cuts of $20 billion over the
last few years, and that additional revenues should be spent
on restoring those budgets instead of being used for tax
incentives. This may be particularly true for college savings
plans, which may be used to fund college expenses out of
state. The committee may wish to consider whether increased
funding to existing programs would be a more efficient
approach to achieving these goals.
3) Refundable Tax Credits. Opponents further argue that
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refundable tax credits create greater opportunities for fraud.
An August 2013 report by the US Treasury's inspector general
for tax administration estimated that 21% to 25% of federal
earned income tax credit payments were improperly issued
during 2012, amounting to approximately $11 billion in
improper payments. California's two popular, formerly
refundable credits - the renters' credit and the child and
dependent care expenses credit - also had very high fraud
rates, prompting the Legislature to repeal their
refundability.
Furthermore, this bill provides that the portion of the credit
that is in excess of the tax liability shall, upon
appropriation by the Legislature, be paid to the qualified
taxpayer. As a result, it is possible that taxpayers relying
on the refundability of the credit may not receive the credit
owed. Additionally, the bill is unclear as to whether the
appropriated funds would apply to a single taxable year or to
multiple years. If not, this credit will inure primarily to
the benefit to higher income taxpayers.
Analysis Prepared by : Joel Tashjian / APPR. / (916) 319-2081