Over the last few months, the media has described Congress as “dysfunctional” and “broken,” and the public as “frustrated” and “angry” with its lawmakers. Interestingly, those are the same words that are used to describe today’s tax code.
That is what spurred the two of us — a Democrat from Chicago and a Republican from Nashville — to start working together to fix the tax code so that students and families would have an easier time affording higher education.
It’s a well-known fact that the cost of education is climbing, and that for too many, the ability to save and pay for college without ending up under a mountain of debt, is simply out of reach. Today’s broken tax code does little to ease that financial burden or provide a sense of security that education will be a reality in the future. In fact, because it is such a complex and confusing system, more than 80 percent of Americans say that dealing with the tax code makes them frustrated and angry.
As the chairwoman and co-chairman of the Ways and Means Committee Education Tax Reform Working Group, one of 11 working groups tasked with exploring how to make the tax code simpler and fairer for families, frustration with the code was a common theme in our meetings. Working with the Joint Committee on Taxation, we learned that currently there are 15 different tax breaks for education — four are designed to help individuals save prior to becoming a student, nine are available while the student is in school, and two exist for when the student has completed his or her education. It was overwhelming when we had tax experts explain it, and so it was not difficult to imagine parents trying to navigate and understand it all. After sorting through the 90 pages of IRS instructions, parents would simply just toss up their hands and say, “I give up.”
During our time together on the Education Tax Reform Working Group, our work didn’t end when we delivered our report to our colleagues. Instead, our desire to provide at least some relief from that frustration led the two of us to work even further to see how we could clean up the code and actually help students and families in their struggles to finance education costs.
That process has led us to introduce the Student and Family Tax Simplification Act. This legislation consolidates four existing education provisions — the Hope Credit, the American Opportunity Tax Credit, the Lifetime Learning Credit, and the tuition deduction — into a single, modernized and strengthened AOTC. As outlined in the legislation, the new AOTC, which would be permanent and partially refundable, would:
• Provide a 100 percent tax credit for the first $2,000 of eligible higher education expenses and a 25 percent tax credit for the next $2,000 of such expenses (for a maximum credit of $2,500).
• The first $1,500 of the credit would be refundable, meaning that families could receive the benefit regardless of whether they have federal income tax liability.
• The credit could be used to offset expenses for tuition, fees and course materials.
•The credit would be available for up to four years of post-secondary education at qualifying four-year universities, community colleges, and trade and vocational schools.