In a session where both parties constantly tout their efforts to help the middle class, Sen. Michael Merrifield thought his bill on higher education would be a hit.
Senate Bill 118 concerned Coloradans who save for college through a not-for-profit state agency called CollegeInvest, where money is put into what are known as 529 plans.
As amended, the proposal from Merrifield, a Colorado Springs Democrat, would have eliminated the state income tax break for those earning more than $500,000 a year, while doubling it for those making less than $150,000 a year. Coloradans earning between $150,000 and $500,000 would still receive some tax break.
The bill died March 5 on a 3-2 party-line vote in the GOP-controlled Senate Finance Committee, where Sen. Chris Holbert made a statement that stunned Democrats and bill supporters.
“I represent a part of a county that has the sixth-highest income demographic in the nation,” the Parker Republican said. “The people who elected me and who I represent, many are in those upper-income brackets.”
Census data shows that the median household income in Douglas County is $101,591, compared with the state average of $58,433.
“I’m surprised that some members would say that they take into account how much money certain constituents make when they’re taking a vote,” said Sen. Andy Kerr, D-Lakewood. “This bill was about improving college opportunities for the middle class.”
The middle class has been the mantra of this year’s session, and it was the topic of a speech President Barack Obama delivered March 10 at Georgia Tech.
“A college degree is the surest ticket to the middle class and beyond,” the president said.
“Higher education has never been more important, but it’s also never been more expensive. The average undergrad who borrows money to pay for college graduates with about $28,000 in student loan debt.”
Under 529s — named for a section of the tax code they fall under — contributions and the returns can be withdrawn tax-free as long as they are used for qualified educational expenses anywhere in the country. The investments are designed to reduce student loan debt and encourage planning for college costs, from books to tuition.
In Colorado, there is an added benefit of the state income tax break. Under current law, there is no income limit to receive the break. Every dollar invested up to $350,000 can be deducted when calculating state income taxes.
Those deductions in 2014 meant $11.68 million less for the state’s general fund, with 44 percent of the breaks going to Coloradans who earn $250,000 or more, according to a 2014 tax report.
During the committee hearing, Holbert said he was a “reluctant no” on the bill, pointing out, “I’m one of those doughnut hole people,” or those who make too much money to qualify for financial aid but not enough that they can easily pay for college.
Holbert said this week that he believes most of the people in his district are in the doughnut hole, but he also has to represent higher-income earners.
Ali Mickelson, the director of legislative and tax policy at the Colorado Fiscal Institute, testified in favor of the bill and was disappointed to see it die.
“It took a great program for helping families save for college and made it better for the middle class, for those in the doughnut hole,” she said.
State tax data shows that the average contribution for a family making $73,000 is $3,158 per year. That amounts to a state income tax break of $146, which under Senate Bill 118 would have doubled to $292. The amount is based on the state income tax rate of 4.63 percent.
One of the concerns of CollegeInvest’s chief executive officer, Angela Baier, is that 17 percent of the investment accounts are owned by “high net worth individuals” who fund 40 percent of the program. CollegeInvest is self-supporting through fees and does not receive tax money. It also provides grants and scholarships to low- and middle-income students.
Sen. Tim Neville, R-Littleton, said he voted against the bill because he didn’t want to jeopardize the program.
Holbert urged Merrifield to keep working on the issue. Merrifield said he hopes a similar concept is introduced in the Democratic-controlled House so the discussion can continue.
Lynn Bartels: 303-954-5327, lbartels@denverpost.com or twitter.com/lynn_bartels
Household income
A look at median househould income from 2009-13 in Colorado and certain counties:
Colorado: $58,433
Douglas: $101,591
Broomfield: $77,998
Pitkin: $72,745
Jefferson: $68,984
Boulder: $67,956
Arapahoe: $60,651
Larimer: $58,626
Weld: $57,180
El Paso: $57,125
Adams: $56,270
Denver: $50,313
Mesa: $49,471
Pueblo: $41,777
Source: U.S. Census
