Senate Finance Committee Plans October Higher Ed Tax Bill

Senate Finance Committee Chairman Max Baucus (D-Mont.) recently announced that he would introduce a higher education tax package in October. The bill, long in the works, would combine popular tax incentives - like the Hope credit and above-the-line tuition deduction - and replace them with a "super-credit." According to his staff, the proposal would not include the Lifetime Learning credit.

In addition, Baucus proposes to make permanent several popular higher education provisions that are set to expire. These include IRC Sec. 127 (employer-provided education assistance) and the improvements made to the Student Loan Interest Deduction (SLID) in 2001, both currently set to expire at the end of 2010. Finance staff acknowledged they are also considering an extension of the IRA charitable rollover provision that expires at the end of 2007, but were uncertain if it would be included in this bill or in a general tax extenders package.

The higher education tax package is expected to cost $15-20 billion, and will be offset primarily with items outside of higher education's purview. Earlier this year, committee staff had considered a limitation on tax-free tuition remission benefits under IRC Sec. 117(d). However, after receiving a great deal of negative feedback from our colleges and universities, they decided not to include it as an offset.

Unfortunately, the committee is still considering language on mandatory endowment payouts from colleges and universities with "large" endowments. It's unclear whether they would tie this to tuition increases, and whether the payout would have to be rerouted as tuition assistance. Also unclear is how large "large" is, with the committee looking at endowments of over $500 million and over $1 billion.

During a Finance Committee hearing on offshore investments on September 26, two witnesses testified in support of mandatory endowment payouts for colleges and universities - Jane Gravelle, from the Congressional Research Service, and Lynn Munson, former director of the National Endowment for the Humanities and currently a fellow at the Center for College Affordability and Productivity. Both suggested the mandatory payouts as a way to defray rising tuition costs. The higher education community was not invited to participate, but will submit a rebuttal for the record.

Finance Committee staff appear to disagree on whether to include endowment payout language in the higher education tax bill later this month, or consider it through separate legislation at a later date. The House Ways and Means committee currently has no plans to consider similar tax legislation, and haven't indicated whether they'll take up the Senate bill. So far, House members and staff have only indicated that they're "interested" in the issues under consideration at the Finance Committee.

For more information, please contact:
Karin Johns