Tax Reform

TAX REFORM AND THE HIGHER EDUCATION TAX BENEFITS

In 2013, then-Ways and Means Committee Chairman Dave Camp (R-MI) renewed efforts to have the committee seriously consider tax reform. The committee formally released a discussion draft of fundamental tax reform concepts that would generally eliminate most of the current credits and deductions across the board – in all areas of tax policy – in exchange for lower rates.

For higher education specifically, the draft proposed the elimination of all of the current higher education tax benefits, except for the American Opportunity Tax Credit (AOTC) and tax-favored Internal Revenue Code Section 529 college savings and prepaid plans. The AOTC would have lower income caps, eliminating nearly 50% of current students and families from the benefit, and it would not be available beyond the first four years of college. The draft also contained a proposal to impose an excise tax on certain private college and university endowments, and set a 2% floor on charitable deductions.

About

Fundamentally reforming the Internal Revenue Code is one of the most common priorities for both Republicans and Democrats on the tax-writing committees. Fundamental tax reform is also enormously difficult for Congress to ever successfully address. Various members and committee chairman have embarked on attempts to rewrite the tax code since the last major reform bill in 1986, with little progress.
 

Outlook

Despite the detailed proposals that emerged in the Camp discussion draft, both House and Senate leaders indicated that a fundamental reform package would not move forward, or be considered by either chamber, at that time. The elimination of so many much-loved tax benefits was too controversial and politically dangerous to garner much support from either party. However, with the election of an all-Republican Congress and President, we can expect a renewed focus on, and energy for, tax reform in 2017.

In many substantial ways, higher education tax reform has already been done through the Omnibus Tax and Spending package that was passed by Congress and signed into law by President Obama in December 2015.  That bill made the AOTC permanent, allowing two other confusing tuition tax benefits (the above-the line tuition deduction and the HOPE tax credit) that duplicated much of what the permanent AOTC also covers, to be phased out.  In this way, simplification of tuition benefits for tax payers has already been achieved.

In the News

WHAT YOU CAN DO

Let Members of the House Ways and Means and the Senate Finance Committees know:

  • The importance of maintaining the three tiers of higher education tax benefits in any reform proposals – including the benefits to help save for college, pay tuition, and repay student loans.
  • We are grateful Congress has made the AOTC permanent.  A permanent AOTC is already a step toward properly reforming the tuition benefits.  A permanent AOTC replaces the Hope credit with a more generous benefit, and phases out the duplicative tuition deduction.  In addition, if the AOTC could be extended beyond its current four-year limit, it would negate the need for the Lifetime Learning Credit.

Resources  

NAICU Contact

Karin Johns: Karin@NAICU.edu
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