NAICU Washington Update

Mixed Reviews on Tax Proposals in President’s Budget

February 11, 2016

President Obama’s budget includes several proposals that would significantly impact decision-making for students and families, as well as prospective donors to colleges and universities. 
  • The president’s proposal would attempt to “streamline” higher education tax benefits by consolidating the Lifetime Learning Credit (LLC) into an expanded American Opportunity Tax Credit (AOTC) that is available beyond the first four years of college.  While no specifics were provided, NAICU is supportive of expanding the AOTC beyond the first four years of college, and eliminating the LLC as part of simplification, as long as students that are currently receiving a tax benefit don’t lose it.
  • Also in the proposal, Pell Grants would be exempt from both current tax penalties and their presence in the current AOTC benefit calculation.  While the Administration is supportive of eliminating current taxes on student loan forgiveness, unfortunately, they propose repealing the Student Loan Interest Deduction (SLID), describing it as “complicated.”  While loan forgiveness should be tax-free, SLID should not be eliminated for new borrowers.  Not only is SLID not complicated, it is currently the only tax benefit available for students paying back loans.
  • The budget again proposes to limit the value of itemized deductions and other tax preferences to 28 Percent. The proposal would limit the value of most tax deductions and exclusions to 28 cents on the dollar, a limitation that would affect couples with incomes over about $250,000 (singles with incomes over about $200,000).  This problematic proposal has been included in President Obama’s budget proposals since he’s taken office. Critics of the proposal believe charitable giving should be encouraged, not restricted.  Past proposals have not had any momentum in Congress, as the preservation of the charitable deduction continues to receive bipartisan support. 

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