Eliminate College Tuition Tax Breaks, New Education Sector Report Argues
Washington, D.C. – During the last several years, Congress and the Obama administration have made significant cuts to federal student aid funding to shore up the budget of the Pell Grant program, the primary source of government aid to low-income students. But in a new Education Sector Chart You Can Trust, Stephen Burd argues that the federal government has a better way to keep the Pell Grant program viable: eliminate the American Opportunity Tax Credit and the other federal tuition, tax-break programs.
“At a time when the budget axe is falling on the Pell Grant program, providing billions of dollars in tax benefits to upper-middle income families who would send their children to college without the help is a luxury that the government can no longer afford,” Burd says in Moving On Up: How Tuition Tax Breaks Increasingly Favor the Upper-Middle Class.
Burd analyzed data from the Internal Revenue Service collected by the College Board to document how tuition tax credits have increasingly shifted away from the students and families who need them most. In the years between 1999 and 2001, nearly 83 percent of the higher education tax benefits went to families earning less than $75,000 per year. No benefits went to those earning more than $100,000. By contrast, in the last three tax years alone, families making between $100,000 and $180,000 received nearly a quarter of the benefits. The share going to middle-income families sharply declined.
Burd’s proposal is certain to be controversial. Providing tax breaks for college tuition is one policy area in which both Democratic and Republican elected officials have agreed. In 2001, President Bush included a tax deduction for higher education in his tax cut plan. President Obama made the American Opportunity Tax Credit (AOTC) a centerpiece in the budget stimulus package Congress passed in 2009.
But although the tax breaks do not count as spending in the federal budget, Burd points out that they are still very expensive. He quotes figures from the U.S. Joint Committee on Taxation, estimating that the government will spend about $55 billion on the tuition tax-break programs from 2010 to 2014. The largest amount and share of these benefits will likely go to families making more than $100,000.
Instead of making further cuts to Pell eligibility, reducing grant amounts, or eliminating interest subsidies for student loans, Congress should allow the AOTC to expire at the end of this year, eliminate all of the other tuition tax breaks, and use the savings to ensure that the Pell Grant program remains on a sustainable path, Burd argues.