By Ali Mickelson
CFI Director of Legislative and Tax Policy
Once every session, a hearing comes along that completely flabbergasts me. The comments in the hearing are so contrary to how I see things, I am left completely dumbfounded by the discussion.
Well, Christmas came early this year, and I experienced my annual bafflement when the Senate Finance Committee heard SB17-149 last month.
SB17-149 was a bill that would have allowed a taxpayer to deposit his or her income tax refund into multiple accounts instead of just one as current law allows. This change would be incredibly helpful if, say, you had more than one child and you wanted to contribute to multiple 529 college savings plans, or if you would like to have some of your refund reserved in a savings account but the rest in a checking account to pay off bills. In short, this bill was a common sense measure to allow taxpayers to automatically set aside money for college savings or other long-term priorities.
This bill is especially important in Colorado because of the implementation of the Earned Income Tax Credit. Starting in the 2015 tax year, more than 350,000 Colorado families saw a boost in their tax refund as a result of the Colorado EITC. This increase could be more than $600 for some working families.
Many EITC recipients use their tax refunds on their family’s current household needs. In 2012, 84 percent of EITC recipients used part of the tax refund to pay off debt or cover bills, 61 percent used a portion to cover child-related expenses, and 33 percent used at least part of their refunds to purchase or repair a car. BUT nearly half — 47 percent — also directed part of their refund toward savings for future expenses, such as a security deposit on an apartment, a down payment on a home or a fund for emergencies. A tax refund can be an opportunity to put aside hundreds of dollars that a family may struggle to save during the year. This bill would have increased the likelihood that a family would set aside that money and save for their future.
SB 17-149 would have provided low- and middle-income families a convenient and automatic mechanism for saving. Creating savings and building assets is a critical step toward reducing poverty and creating economic security. Studies have demonstrated savings and assets provide families with numerous important social and economic benefits, including improved household stability, reduced economic stress and enhanced welfare of children. Additionally, children with a college savings account are six times more likely to attend college than those without an account.
No-brainer, right? Of course not. The Senate Finance committee saw it quite differently. One senator who voted against the bill was very concerned about the government’s role in this bill and the attempt to “micromanage people’s personal decisions.” In a rather confusing question to the Bell Policy Center’s Rich Jones, who was testifying in support of the bill, the senator asked about the government “employing behavioral economics” to get people to do what they want them to do and whether this is the appropriate role of government.
The problem with this argument, as Jones and the sponsor, Sen. Daniel Kagan, also addressed in his response, is that we weren’t trying to get taxpayers to do anything with this bill. There is no incentive to save or split your refunds, certainly not any more than there is to spend your tax refund on a new TV the day after you get the refund.
We merely wanted to give taxpayers the opportunity to choose what they want to do with their money. I simply can’t even understand the idea that allowing taxpayers to choose where to spend their money is any kind of government direction or manipulation.
Another senator who voted against the bill acknowledged that it provided convenience for taxpayers, but said he was bothered that retirement savings programs weren’t included in the refund direct deposit process. This, of course, is an important policy question, but it has nothing to do with this bill and the convenience provided for taxpayers. In fact, it is an acknowledgement that directly depositing your tax refund is a great option for Colorado families who want to be thoughtful stewards of their family budgets.
Yet another senator who opposed the bill explained his opposition as government trying to manage people’s lives. He agreed with the economic theory behind the bill but stated it’s not the role of government to make choices for people, and when government does, people don’t learn to make choices on their own. He then explained how he learned to save money growing up, arguing the bill would create more dependency.
I couldn’t make this stuff up.
Go back and read what this bill would have done. I’ll wait. Now, how we have gone from allowing people the convenience of choosing what to do with their money to creating more government dependency is beyond me, but again, Christmas came early this year, and I must have been really good.
Needless to say, this bill died on a party-line vote. I hope we will see it again next year because common-sense policy is what I would like to create dependency on. There’s a behavioral economic theory I think we can all agree with.