Cash for College? House Committee Advances Tax Breaks for Students

Cash for College? House Committee Advances Tax Breaks for Students

Sean Morrison[*]


With students long gone on summer break, the House Committee on Ways and Means recently advanced legislation by a vote of 22-13 that combines several of the existing tax incentives for higher education into one unified tax credit.[2] Representatives Diane Black (R-TN) and Danny K. Davis (D-IL), who introduced the Student and Family Tax Simplification Act of 2014 (H.R. 3393) last October,[3] said in opening remarks to the June markup that a streamlined credit for higher education costs would better serve families coping with the rising cost of post-secondary education.

The Committee bill is likely just an election year talking point rather than a realistic effort at reform. Yet it does provide a preview of what’s ahead in 2017, when Congress will have to make a decision on the future of tax incentives for higher education.

The short bill—totaling only 14 pages—combines three current tax incentives, the American Opportunity Credit (AOTC), the Lifetime Learning Credit, and the tuition deduction—into a single AOTC.[4] The new incentive would provide a dollar-for-dollar (100 percent) credit for the first $2,000 of qualified higher education costs and a 25-percent credit for qualified costs above $2,000. The Act caps the new AOTC at $2,500 and makes the credit refundable up to $1,500.

Graduate students would undoubtedly fare better under the proposal than they do under current law.[5] Unlike the current AOTC, the new credit would not be limited to the first four years of a student’s post-secondary education. And the new credit is more valuable to graduate students than the existing Lifetime Learning Credit because the new credit has a higher cap and is partially refundable. The current Lifetime Learning Credit, on the other hand, has a lower cap, uses a more complicated credit calculation formula, and is not refundable. For undergraduate students, the new simplified credit increases the refundable portion by $500. And undergraduate students convicted of a felony for possession of a controlled substance, who are currently ineligible for  the current AOTC, would be eligible for the new credit.

The Joint Committee on Taxation (JCT) estimated that the bill, as introduced by Rep. Black and Davis, would cost $35 billion over ten years (including the offsetting increases in revenue generated by eliminating existing provisions).[6] Chairman Camp, however, made several modifications, such as increasing the income level at which the credit phases out, resulting in a revised estimated cost of $96.5 billion.[7] While the cost may seem steep, Congress cannot avoid a major expense on education incentives in the near future unless it is willing to let education incentives revert back to pre-2009 levels. The current AOTC expires in 2017 and the last AOTC extension—from 2012 through 2017—was estimated to cost $67 billion (without the offsetting impact of eliminating the tuition deduction or Lifetime Learning Credit).[8]

Rep. Davis and Rep. Black began working to reform higher education tax incentives as Chair and Co-Chair of the Tax Reform Working Group on Education, one of several working groups put together by Chairman Dave Camp (R-MI) and Ranking Member Sandy Levin (D-MI) in February of 2013.[9] Much of the Student and Family Tax Simplification Act was incorporated into Chairman Camp’s comprehensive tax reform proposal released earlier this year. Camp’s comprehensive plan includes other changes that would help offset the cost of the education incentive overhaul.[10] But Chairman Camp’s grand plan has almost zero chance of advancing in the next few months.[11] And Camp’s tenure at the helm of the powerful Committee on Ways and Means will end next January—no matter what happens at the polls in November.[12]

In this environment, the House Committee has started advancing smaller, piecemeal proposals, such as the Student and Family Tax Simplification Act. Yet the Committee has only taken up politically popular, revenue-draining proposals, including a proposal to make the research and development tax credit permanent and an expansion of the child tax credit.[13] So far, the Committee has left the less popular, revenue-raising parts of Chairman Camp’s plan alone. The Committee has recently even taken up proposals that reverse course from less popular parts of Chairman Camp’s five-month-old plan: the Committee advanced, and the House passed, a proposal to make bonus depreciation permanent, which JCT estimated would cost $263 billion over ten years.[14] Chairman Camp’s overhaul plan would have let the lucrative provision expire.

All of this suggests that the piecemeal proposals, including the Student and Family Tax Simplification Act, are not a new strategy to enact comprehensive tax reform before Camp’s retirement, but rather an old strategy for generating talking points in an election year.

[*] J.D. Candidate, Harvard Law School, 2015.

[2] Markup of: H.R. 3393, “Student and Family Tax Simplification Act”; H.R. 4935, “Child Tax Credit Improvement Act of 2014,” House Committee on Ways and Means (June 25, 2014), []; Votes of the Committee, House Committee on Ways and Means (June 25, 2014), [].

[3] H.R. 3393, 113th Cong. (2013).

[4] Markup Text of H.R. 3393, House Committee on Ways and Means (June 25, 2014), [].

[5] See Description of H.R. 3393, The “Student and Family Tax Simplification Act,” Joint Committee on Taxation (June 23, 2014), [].

[6] Id.

[7] See Description of An Amendment in The Nature Of A Substitute To The Provisions Of H.R. 3393, The “Student and Family Tax Simplification Act,” Joint Committee on Taxation (June 24, 2014), [].

[8] Estimated Revenue Effects Of The Revenue Provisions Contained In An Amendment In The Nature Of A Substitute To H.R. 8, The “American Taxpayer Relief Act Of 2012,” As Passed By The Senate On January 1, 2013, Joint Committee on Taxation (Jan. 1, 2013), [].

[9] Bernie Becker, Ways and Means unveils tax reform working groups, The Hill (Feb. 13, 2013), [].

[10] Camp Tax Plan Has Implications for Higher Education, Nat’l Assoc. of Student Personnel Administrators (Mar. 5, 2014), [].

[11] Martin Sullivan, If Camp’s Tax Reform Bill Won’t Pass, Why Is It So Important?, Forbes (Mar. 10, 2014), [].

[12] Mark Tower, U.S. Rep. Dave Camp: ‘I don’t have any plans’ after congressional term is up, MLive (last updated Apr. 25, 2014), [].

[13] See Bernie Becker, House Ways and Means to consider more tax breaks, The Hill (Mar. 23, 2014), []; Richard Rubin, Child Tax Credit Gets Boost From House Republican Plan, Bloomberg (June 23, 2014), [].

[14] Howard Gleckman, Dave Camp’s Great Bonus Depreciation Flip-Flop, Forbes: Business in the Beltway (May 29, 2014), [].

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