Tax Reform “Framework” Suggests Retaining, but Consolidating, Higher Education Benefits

House and Senate Leaders, in cooperation with the Administration, released details of a Tax Reform Framework that builds on President Trump’s four principles of; 1) simplifying the tax code, 2) lowering taxes for U.S. workers, 3) bringing more jobs to the U.S.; and 4) bringing back trillions of dollars currently kept offshore and reinvesting in the U.S. economy.  The Tax Framework retains and builds on those goals.

While the 9-page document does not contain specific legislative proposals, it does provide more detail about the intentions of the tax-writing committees than previously known.  This past April, President Trump released a one-pager outlining his goals for tax reform.  His outline retained charitable giving and home-mortgage interest tax benefits, but suggested eliminating all other individual benefits. 

This new Framework recognizes the importance of maintaining those benefits, but also suggests maintaining benefits that encourage “work, higher education, and retirement savings.”  This is an important acknowledgement and placeholder going forward.  The Framework does, however, support the consolidation and simplification within these three benefits, which could lead to the elimination of some higher education benefits if they’re seen as complicating the tax code.

There are an array of current tax benefits that help students and families save for college, pay tuition, and repay loans, including:

• Saving for College: Section 529 College Savings Plans and Coverdell Education Savings Accounts
• Paying for College: The American Opportunity Tax Credit (AOTC), Sec. 127 – employer-provided education assistance, Sec. 117(d) tuition remission, and the Lifetime Learning credit.
• Repaying Loans: the Student Loan Interest Deduction (SLID)

 While the Framework lacks specificity, NAICU has long supported simplifying two of the tuition benefits by combining the AOTC and Lifetime Learning Tax Credit, and has submitted a proposal to House and Senate Leaders on different occasions.  While simplification was largely achieved in omnibus appropriation and tax legislation agreed to in December 2015, which made the AOTC permanent, NAICU would support further simplifying the benefit by allowing it beyond the first four years of college.  This change would negate the need for the Lifetime Learning credit. 

That said, NAICU strongly supports maintaining separate incentives for saving and paying for college and for repaying student loans, and would oppose efforts to have only one narrow tuition benefit as was proposed by then-Ways and Means Chairman Dave Camp (R-MI) in 2013.  Still, many of these current benefits could be at risk in any future simplification bill.

The Framework continues to recognize the need to preserve charitable giving benefits, though it is a concern that the IRA charitable rollover is not specifically protected.  The fate of other tax benefits for institutions is also unclear.

The next phase of the process will be for the House and Senate to develop detailed legislative proposals.  Ways and Means Committee Chairman Kevin Brady (R-TX) says he won’t do that until the House and Senate agree on a budget resolution that has reconciliation instructions for tax reform. Rep. Brady is hoping a budget will be approved in mid-October, clearing the way for Ways and Means to introduce a tax bill before the end of the next month.  Right now, the House and Senate are not on the same page on the budget resolution, so Rep. Brady is clearly trying to pressure lawmakers to come to an agreement on that front.

In addition, the House and Senate are not necessarily in agreement on the possible details of a tax reform or relief bill, so the months ahead will be complicated.  When pressed for a more specific strategy or time-line, the most common response from Congressional leaders continues to be an expressed desire to do something significant on tax policy before the end of the year.
 

For more information, please contact:
Karin Johns