NAICU Washington Update

House Ways and Means Committee Approves Permanent AOTC Bill

June 27, 2014

Legislation to make the American Opportunity Tax Credit (AOTC) permanent as well as consolidate and eliminate other current tuition tax benefits was passed by the House Ways and Means Committee on June 25.

The “Student and Family Tax Simplification Act” (H.R. 3393), also known as the “Black-Davis” bill after its authors, Reps. Diane Black (R-TN) and Danny Davis (D-IL), was greatly improved after the intense advocacy efforts of NAICU members who helped ensure about 5 million middle class Americans did not lose their educational benefit.

As originally introduced, H.R. 3393 was extremely problematic. The original bill eliminated AOTC eligibility for nearly 50 percent of current students and families. It also cut the eligibility income caps from the current levels of $80,000 for single and $160,000 for joint/married filers to $43,000 for single and $86,000 for joint/married filers.

In addition, the original bill replaced the Hope Credit, Lifetime Learning Credit, and the Tuition Deduction with a permanent AOTC. Since the AOTC works as an enhanced Hope Credit, the Hope Credit would be unnecessary. Unfortunately, since the bill only permitted the AOTC benefit for the first four years of college, eliminating the Lifetime Learning Credit and Tuition Deduction would deny a current tax benefit to future graduate students and lifetime learners.

After a short but intense advocacy effort by the NAICU membership, House Ways and Means Chairman Dave Camp (R-MI) this week offered a “Manager’s Amendment” restoring the income caps to their current levels of $80,000 for single and $160,000 for joint/married filers. Unfortunately, the amendment did not address the four-year AOTC limit and the loss of graduate education benefits also important to NAICU member institutions and students.

The revised bill also includes provisions to exclude Pell Grants from taxation, allow both a full amount of the refundable credit and a Pell Grant to eligible students, and indexes the income limits for inflation.

During the committee’s consideration of the bill, many members expressed concern with the bill and indicated they had heard from the colleges in their states or districts. The Manager’s Amendment was adopted, and the bill passed the committee by a 22-13 party line vote. Committee minority members voted against the bill primarily because its cost ($96 Billion) was not offset with any revenue raising provisions.

It is unclear if H.R. 3393 will be considered by the whole House.

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