March 07,2006

Grassley Urges Permanence of Tax Benefits for College Savings Plans

Remarks of Sen. Chuck Grassley
Chairman, Committee on Finance
to the National Association of State Treasurers
Tuesday, March 7, 2006

It’s very nice to be here with you today. The power of state governments is makes our
American style of federal government unique. It is a model that our founding fathers handed down
to us, and that governments around the world continue to emulate. As a society, we benefit from dual
state and federal government. Often, we here in Washington learn lessons and adopt policies that
were first put in place at the state level. State and federal partnerships improve our government at
all levels. It’s important that we keep talking to one another – just as it’s important that we talk to
the citizens whom we serve in our states. As chairman of the Senate Finance Committee, I spend
a lot of my time on the same issues that you do – promoting sensible tax policy, being a good
steward of public tax dollars, and finding ways to improve the services that government provides to
citizens. One area that I’ve had the benefit of working with many of you on is 529 college savings
and tuition plans.

This is where the state-federal partnership couldn’t be stronger, and where Congress has
really learned from the good work you do in states. We all know that one of the biggest challenges
facing American families is the rising cost of college education. For two decades now, college
tuition has been rising rapidly – much faster than the normal inflation rate, which has been quite low
during that period. States recognized this problem very early on – largely because you have the
benefit of being on the front lines of college financing through the countless public institutions of
higher learning across the country.

Once states recognized the problem, you all set out to find innovative solutions, creating prepaid
tuition and college savings plans to get in front of rising tuition costs. When the tax treatment
of these plans was called into question, it was Congress’ turn to do its part and to clarify that tax
treatment. In the 1990s, we did exactly that, and then in the 2001 tax relief bill, we went further and
improved the tax treatment of 529 plans.

But unfortunately, there’s still some uncertainty in the tax rules that we in Congress need to
take care of. Because of arcane congressional budget rules, the good tax changes we made on 529
plans will expire at the end of this decade. So today, someone who wants to invest money for their
child or grandchild’s college education doesn’t know if the tax benefits will be there when their
loved ones go to college. I’m a proud contributor to my state, Iowa’s, 529 plan, so I feel this
uncertainty first-hand.

Unfortunately, for many other families, this uncertainty has prevented them from signing up
with a 529 plan altogether. That’s a shame because new parents seem to want to start planning for
their children’s education earlier than ever. The sticker shock of college tuition gets their attention
very early. The good news is we’re working to fix the uncertainty. A bill I introduced last year with
Senator Baucus, the ranking Democrat on the Finance Committee, would make sure that the tax
advantages for 529 plans are permanent. And thanks to the efforts of all of you here in this room,
we’ve had tremendous success in building support for this legislation. Today, a majority of United
States senators have signed on in support of my bill. The bill has 53 co-sponsors, both Republican
and Democrat and even the Senate’s Independent, Senator Jeffords. It’s pretty rare for legislation to
get that much support. It shows that education is one topic that easily transcends any partisan divide.

I know that the Senate supporters have heard from all of you about the importance of making
these changes permanent, and I appreciate your efforts. I don’t need to tell you how important it is
that we get this law made permanent as quickly as possible. In today’s increasingly global world,
the difference between those who lead and those who follow is often determined by the level and
quality of education they receive. We need to make sure our young people are prepared and have the
tools they need to compete in the 21st century world. You deserve the credit for building college
tuition plans that help ensure that money is not an obstacle to achieving our goals. Thank you very
much, and keep up the good work! Now I’ll be glad to take your questions.