Introduction of the Bipartisan Student and Family Tax Simplification Act

Floor Speech

Mr. DANNY K. DAVIS of Illinois. Mr. Speaker, education is key to the economic well-being of our citizens and our democracy. Today, I am pleased to join my colleague, DIANE BLACK from Tennessee, in introducing the Student and Family Tax Simplification Act. This bipartisan bill simplifies our tax code and dramatically strengthens our investment in students and their families, expanding aid for the lowest-income students.

Tax-based aid represents more than half of all non-loan federal aid, playing an important role in promoting college affordability, access, and completion. As partners in the Ways and Means Education and Family Benefits Tax Working Group, Congressman BLACK and I heard from dozens of experts about the need to improve education tax benefits. There was surprising agreement among politically-diverse stakeholders about the problems of and promising reforms to tax-based education benefits. The Student and Family Tax Simplification Act is a bipartisan effort to implement stakeholder recommendations for reform.

Education tax experts described current education tax benefits as complex and poorly targeted. The greatest agreement centered on creating one credit for current education costs to improve the simplicity, awareness, and use of tax benefits. Stakeholders highlighted that the complexity of multiple benefits makes it difficult for taxpayers to understand whether they qualify for a benefit and which benefit best meets their needs. Indeed, a study by the Government Accountability Office showed that 1.5 million tax filers who qualified for either the Tuition and Fees Deduction or the Lifetime Learning Credit in 2009 did not claim the credit or deduction; another 237,000 did not claim optimal benefits. To improve the effectiveness of the American Opportunity Tax Credit (AOTC), both conservative and progressive stakeholders urged policymakers to target benefits to low- and moderate-income taxpayers whose college enrollment and persistence decisions are more sensitive to cost.

The Student and Family Tax Simplification Act simplifies education benefits by consolidating the Hope Tax Credit, the Tuition and Fees Deduction, and the Lifetime Learning Credit into the AOTC, creating a single credit for current educational expenses. The bill also extends the AOTC permanently rather than allowing it to expire in 2017 and preserves the value of the credit over time by adjusting for inflation starting in 2018, an important provision given that college expenses have risen much quicker than inflation for many years.

In addition, the bill creates an improved, more robust education tax benefit for low-income students in multiple ways. It adopts the upper phase-out limits for the Hope tax credit adjusted for inflation, which focuses aid on families whose incomes are in the bottom 80% of income distribution. The bill also doubles the current phase-out range for single and joint filers to create a more gradual phase-out of the benefit and to reduce the effective marginal tax rate associated with the phase-out. These changes phase-out the credit for single tax filers between $43,000 to $63,000 ($86,000 to $126,000 for joint tax filers).

The bill expands aid to low-income students by increasing the amount of credit available and removing obstacles to claiming the credit. This bill increases the maximum refundable credit from $1,000 to $1,500. It also changes the process of awarding the credit from covering a proportion of total eligible expenses to covering the first qualified expenses. Currently, a family would have to have $4,000 in expenses to claim the $1,000 refundable credit; under the new bill, low-income families could claim the full $1,500 refundable credit after only $1,500 in eligible expenses, greatly enhancing the effectiveness of the credit for low-income families.

The bill also allows students to combine Pell grants and AOTC to address unmet financial need. Due to poor coordination between Pell grants and the tax code, an estimated 1 million college students with unmet financial need do not receive any benefit from the AOTC, with the vast majority of these students attending low-cost institutions such as community colleges. The bill improves coordination between the AOTC and Pell without double counting the same expenses as well as excludes Pell grants from taxation to simplify compliance.

In closing, the Student and Family Tax Simplification Act will help streamline education tax benefits, making it easier for students and families to understand and take advantage of education tax benefits. Further, it will substantially increase federal assistance for education for the lowest-income students and families, improving the affordability of higher education.

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