Daily Tax Update - July 25, 2012: Hearing Highlights How Tax Reform Can Increase Access to Education

HEARING HIGHLIGHTS HOW TAX REFORM CAN INCREASE ACCESS TO EDUCATION:  Today, the Senate Finance Committee held a hearing to examine how tax reform can increase access to high-quality education and how that access will promote economic opportunity and growth.

The witnesses were:

  • Dr. Waded Cruzado, President, Montana State University
  • Ms. Lynne Munson, President and Executive Director, Common Core
  • Dr. Susan Dynarski, Associate Professor, University of Michigan
  • Mr. Scott Hodge, President, Tax Foundation
  • Mr. Jim White, Director, Tax Issues, Government Accountability Office
  • In his opening remarks, Committee Chairman Baucus said, "Since 1954, Congress has provided tax cuts for families with children pursuing a college education.  These provisions help families cover past, present and future expenses.  The student loan interest deduction provides students a tax deduction for interest paid on a student loan. The tax code also encourages families to save for future education expenses by providing tax-free savings vehicles.  529 programs and Coverdell accounts allow families to save for college without paying taxes on the earnings.  Distributions from these accounts can be used to pay education expenses. The tax system provides the most tax benefits for current expenses.  Under the current tax system, there are provisions that exclude certain financial assistance from income.  For example, scholarships and fellowships that cover qualifying education expenses are excluded from the income of the student.  The tax code also contains credits and deductions to help students pay for current expenses.  The tax code cannot solve our educational challenges on its own.  But it plays an important role."
  • Mr. Cruzado said, "The tax code can play a vital role in assisting students and their families with the cost of higher education, but its complexity discourages many from using it to full advantage. Even tax accountants find it difficult to navigate all the rules. For example, the tax code currently assists students across a broad range of incomes – from the 'refundability' component of the American Opportunity Credit (AOC); through the Lifetime Learning Credit; deductions for tuition and fees; exclusion of scholarships, grants and tuition reductions from income; exclusion of employer-provided educational assistance; and student loan interest deductions."
  • Ms. Munson made the following suggestions: "require colleges and universities to do what private foundations must: Spend a certain percentage of the value of their endowments each year…  make colleges and universities publicly disclose the amount and purpose of each and every endowment expenditure…  make the university president, administrators, and professors pay tax on the free college education their children receive."
  • Dr. Dynarsk testified, "The goal of federal aid and the education tax incentives is to open the doors of college to those who have the ability but not the means to attend. Through some simple reforms, the government can serve this goal more effectively and efficiently. The current education tax benefits provide relief for middle- and high-income families with children in college but do little to get more people into college. We should simplify and focus the tax incentives, and coordinate them with Title IV programs."
  • Mr. Hodge stated, "While we all understand the value and financial benefit of getting a college degree, using the tax code to 'make college more affordable' not only violates the principles of sound tax policy, but also produces serious unintended consequences. These 'tax programs' – for lack of a better word – are likely contributing to the rising costs of higher education while helping to knock millions of people off the tax rolls. This, in turn, is disconnecting millions of people from the basic cost of government and transforming the IRS into an extension of the Department of Education and the welfare system. These are not the kind of consequences that can be cured by a simple reform of tax credits, but by a wholesale reform of the entire tax code."
  • Mr. White discussed a new GAO report covering the following issues:  (1) the size and distribution of federal grants, loans, and tax expenditures available to assist students and families with higher education expenses; (2) the extent to which tax filers select higher education provisions that maximize their tax benefit; (3) the effect of grants, loans, and tax expenditures on student attendance, choice, persistence, and completion; and (4) factors that contribute to the effectiveness and efficiency of federal higher education student assistance programs.
  • For additional information, contact Philip R. West - pwest@steptoe.com or Amanda Varma - avarma@steptoe.com
  • Testimony can be accessed here.

TAX BILLS INTRODUCED JULY 24TH:

1. [112th] H.R.6177 : To amend the Internal Revenue Code of 1986 to increase the deduction for start-up expenditures for business for 2012 and 2013.
Sponsor: Rep Braley, Bruce L. [IA-1] (introduced 7/24/2012)   Cosponsors (None)
Committees: House Ways and Means
Latest Major Action: 7/24/2012 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

2. [112th] H.R.6179 : To amend the Internal Revenue Code of 1986 to extend for 1 year the American Opportunity Tax Credit and the disregard of tax refunds for purposes of Federal, and federally-assisted, programs.
Sponsor: Rep Doggett, Lloyd [TX-25] (introduced 7/24/2012)   Cosponsors (22)
Committees: House Ways and Means
Latest Major Action: 7/24/2012 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

3. [112th] H.R.6180 : To amend the Internal Revenue Code of 1986 to prevent the alternative minimum tax from effectively repealing the Federal tax exemption for interest on State and local private activity bonds.
Sponsor: Rep Neal, Richard E. [MA-2] (introduced 7/24/2012)   Cosponsors (1)
Committees: House Ways and Means
Latest Major Action: 7/24/2012 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

4. [112th] H.R.6181 : To amend the Internal Revenue Code of 1986 to extend certain improvements in the child tax credit and the earned income tax credit, and for other purposes.
Sponsor: Rep Neal, Richard E. [MA-2] (introduced 7/24/2012)   Cosponsors (12)
Committees: House Ways and Means
Latest Major Action: 7/24/2012 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

5. [112th] S.3427 : A bill to permanently extend the employer-provided child care credit under section 45F of the Internal Revenue Code of 1986.
Sponsor: Sen Kohl, Herb [WI] (introduced 7/24/2012)   Cosponsors (None)
Committees: Senate Finance
Latest Major Action: 7/24/2012 Referred to Senate committee. Status: Read twice and referred to the Committee on Finance.

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