House Tax Reform Bill Would Eliminate Most Current Higher Ed Benefits

Proposal stands little chance of advancing

The Chairman of the House Ways and Means Committee, Rep. Dave Camp (R-MI), introduced legislation on February 26, that would overhaul the current Internal Revenue Code by lowering tax rates and eliminating popular tax breaks. While the bill is quite controversial, politically hazardous, and is not expected to be considered in the House or Senate this year, it does reflect Chairman Camp’s commitment to introducing fundamental reform measures during his tenure as Ways and Means Chairman.

The Camp bill would reduce tax rates for both individuals and corporations, and would permit a new standard deduction that would allow many filers an easier tax filing process. However, the bill would also eliminate hundreds of popular tax breaks, including most of the current higher education benefits.

Specifically, the bill would eliminate Sec. 127 – employer-provided education assistance, the student loan interest deduction, the tuition deduction, the Lifetime Learning credit, tax forgiveness on loan repayment, and the tuition remission benefits available to college employees and their children under Sec. 117(d). The bill would maintain the current charitable deduction but only for giving that exceeds 2% of a taxpayer’s annual income. (See recent Forbes article for more detail on why the elimination of the higher education benefits would hurt a family’s ability to save and pay for college, and would hit the middle class the hardest.)

Private Colleges and Universities Singled Out

In a specific hit on private colleges, the bill would create a new excise tax on excess endowment funds at private colleges and universities only – not public colleges. The Camp draft indicates that a 1% excise tax would be applied to endowment funds not used for “educational” purposes at private institutions with endowments valued over $100,000 per full-time student. To add to the confusion, the Joint Committee on Taxation, which serves as the official revenue estimating committee for both House and Senate tax committees, describes the same provision as being applicable to private college endowment funds not used, or held in use, for an institution’s “exempt” purposes.

The bill does allow a modified, permanent American Opportunity Tax Credit (AOTC), which resembles legislation introduced by Ways and Means committee members Reps. Diane Black (R-TN) and Danny Davis (D-IL), H.R. 3393. While the AOTC would be made permanent, the income caps would be cut almost in half, reducing eligibility by nearly 50%. It would also only allow a benefit for the first four years of college, eliminating graduate assistance.

College tax breaks were not the only target in this bill. The legislation would eliminate personal exemptions, child care benefits, deductions for state and local taxes, retirement savings, and cut in half the current home mortgage interest deduction. In addition, the proposed hefty new taxes on banks and other financial institutions have resulted in a threat from Wall Street to cease political contributions immediately.
Given the extraordinary controversy in Congress on proceeding with tax reform, House and Senate leaders announced before the bill was even introduced that it would not be considered by either chamber this year. Senate Majority leader Mitch McConnell went so far as to say the bill had “no chance” of consideration in 2014.

This will be Chairman Camp’s final term leading the Ways and Means Committee. Rep. Paul Ryan (R-WI), who is expected to take over the helm in the next session of Congress, has not indicated that tax reform would be a top priority for the committee, nor has he endorsed the Camp bill. He has only indicated that the Camp Bill is courageous and will allow for a good conversation on tax reform. 

For more information, please contact:
Karin Johns