NAICU Washington Update

NAICU Submits Tax Reform Proposal to Senate Finance Committee

April 08, 2015

In March, the Senate Finance Committee solicited comments and proposals for specific areas of tax reform from interested groups and individuals. NAICU submitted a proposal, which is identical to one it submitted in 2013 to the House Working Group on Education and Family Benefits, to reform the student and family higher education tax benefits, including consolidating and simplifying the tuition benefits. NAICU supports the current structure of tax benefits for students and families that help them save for college, pay tuition, and repay student loans.

Under Chairman Orrin Hatch (R-UT), the Senate Finance Committee has been divided into five working groups (business, individual, savings and investment, international, and community development and infrastructure) which will look at reform options for various sections of the tax code. This process is similar to the effort undertaken during the last two years in the House Ways and Means Committee. While then-Ways and Means Chairman Dave Camp (R-MI) ultimately proposed a comprehensive draft of tax reform proposals, the Senate is less adamant about producing a similar document in a particular time frame. The Senate is more focused on examining the tax code and working through its various sections, with a longer term goal of possible legislation.

Reforming the higher education tax benefits appears to many, including members of the House and the Administration, as an easy first step in the larger tax reform process because of the widespread agreement that education benefits are overlapping and ripe for simplification. While NAICU agrees that the tuition benefits are indeed duplicitous and confusing, efforts to simplify them should not include the elimination of other benefits for saving for college or repaying student loans. Previous legislation in the House, and a more recent proposal from the White House, would have eliminated many important benefits and cut students’ eligibility for benefits, as well as limited savings options and loan repayment benefits.

Among the current array of tuition benefits, Congress can easily achieve simplification by making the most generous benefit – the American Opportunity Tax Credit (AOTC) – permanent (it is currently set to expire on December 31, 2017). A permanent AOTC would negate the need for the Tuition Deduction, Hope Credit, and Lifetime Learning Credit. However, to ensure that no student loses his or her tax benefit as a result, current AOTC income limits must be maintained, and the AOTC should be available beyond the first four years of college, for graduate students and lifetime learners.

There is pending legislation in both the House and Senate that would reform the benefits without eliminating them. S. 699, introduced by Sen. Charles Schumer (D-NY) and H.R. 1260, introduced by Rep. Lloyd Doggett (D-TX), would both achieve consolidation and simplification without harm to any current students or families. NAICU supports both of these efforts.

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