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Education Tax Incentives and Tax Reform Hearing

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Education Tax Incentives and Tax Reform Hearing S. HRG. 112–803 EDUCATION TAX INCENTIVES AND TAX REFORM HEARING BEFORE THE COMMITTEE ON FINANCE UNITED STATES SENATE ONE HUNDRED TWELFTH CONGRESS SECOND SESSION JULY 25, 2012 ( Printed for the use of the Committee on Finance U.S. GOVERNMENT PRINTING OFFICE 82–271—PDF WASHINGTON : 2012 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 21:01 Sep 06, 2013 Jkt 000000 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 R:\DOCS\82271.000 TIMD COMMITTEE ON FINANCE MAX BAUCUS, Montana, Chairman JOHN D. ROCKEFELLER IV, West Virginia ORRIN G. HATCH, Utah KENT CONRAD, North Dakota CHUCK GRASSLEY, Iowa JEFF BINGAMAN, New Mexico OLYMPIA J. SNOWE, Maine JOHN F. KERRY, Massachusetts JON KYL, Arizona RON WYDEN, Oregon MIKE CRAPO, Idaho CHARLES E. SCHUMER, New York PAT ROBERTS, Kansas DEBBIE STABENOW, Michigan MICHAEL B. ENZI, Wyoming MARIA CANTWELL, Washington JOHN CORNYN, Texas BILL NELSON, Florida TOM COBURN, Oklahoma ROBERT MENENDEZ, New Jersey JOHN THUNE, South Dakota THOMAS R. CARPER, Delaware RICHARD BURR, North Carolina BENJAMIN L. CARDIN, Maryland RUSSELL SULLIVAN, Staff Director CHRIS CAMPBELL, Republican Staff Director (II) VerDate Nov 24 2008 21:01 Sep 06, 2013 Jkt 000000 PO 00000 Frm 00002 Fmt 0486 Sfmt 0486 R:\DOCS\82271.000 TIMD C O N T E N T S OPENING STATEMENTS Page Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee on Finance ............................................................................................................ 1 Hatch, Hon. Orrin G., a U.S. Senator from Utah ................................................. 3 WITNESSES Cruzado, Dr. Waded, president, Montana State University, Bozeman, MT ....... 5 Munson, Lynne, president and executive director, Common Core, Washington, DC .......................................................................................................................... 8 Dynarski, Dr. Susan, professor of public policy and education, University of Michigan, Ann Arbor, MI ................................................................................ 10 Hodge, Scott, president, Tax Foundation, Washington, DC ................................. 11 White, James, Director, Tax Issues, Government Accountability Office, Wash- ington, DC ............................................................................................................. 13 ALPHABETICAL LISTING AND APPENDIX MATERIAL Baucus, Hon. Max: Opening statement ........................................................................................... 1 Prepared statement .......................................................................................... 33 Cruzado, Dr. Waded: Testimony .......................................................................................................... 5 Prepared statement .......................................................................................... 35 Dynarski, Dr. Susan: Testimony .......................................................................................................... 10 Prepared statement .......................................................................................... 39 Grassley, Hon. Chuck: ‘‘Who Benefits from Student Aid? The Economic Incidence of Tax-Based Federal Student Aid,’’ by Nicholas Turner, University of California, San Diego, October 20, 2010 ........................................................................ 51 ‘‘Administrators Ate My Tuition,’’ by Benjamin Ginsberg, Washington Monthly, September/October 2011 .............................................................. 100 ‘‘Tax Arbitrage by Colleges and Universities,’’ CBO Study, April 2010 ....... 110 Hatch, Hon. Orrin G.: Opening statement ........................................................................................... 3 Prepared statement .......................................................................................... 131 Hodge, Scott: Testimony .......................................................................................................... 11 Prepared statement .......................................................................................... 133 Munson, Lynne: Testimony .......................................................................................................... 8 Prepared statement .......................................................................................... 144 White, James: Testimony .......................................................................................................... 13 Prepared statement .......................................................................................... 152 COMMUNICATIONS American Council on Education (ACE) .................................................................. 161 American Institute of Certified Public Accountants (AICPA) .............................. 168 Center for Fiscal Equity .......................................................................................... 175 Coalition to Preserve Employer Provided Education Assistance ......................... 177 College Savings Foundation .................................................................................... 181 (III) VerDate Nov 24 2008 21:01 Sep 06, 2013 Jkt 000000 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 R:\DOCS\82271.000 TIMD IV Page College Savings Plans Network (CSPN) ................................................................ 185 National Association of Home Builders ................................................................. 195 National Education Association (NEA) .................................................................. 203 Rebuild America’s Schools ...................................................................................... 206 United Technologies Corporation ........................................................................... 207 VerDate Nov 24 2008 21:01 Sep 06, 2013 Jkt 000000 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 R:\DOCS\82271.000 TIMD EDUCATION TAX INCENTIVES AND TAX REFORM WEDNESDAY, JULY 25, 2012 U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC. The hearing was convened, pursuant to notice, at 10:10 a.m., in room SD–215, Dirksen Senate Office Building, Hon. Max Baucus (chairman of the committee) presiding. Present: Senators Bingaman, Wyden, Hatch, Grassley, Snowe, and Thune. Also present: Democratic Staff: Russ Sullivan, Staff Director; Tif- fany Smith, Tax Counsel; and Lily Batchelder, Chief Tax Counsel. Republican Staff: Chris Campbell, Staff Director; Jim Lyons, Tax Counsel; and Chris Hanna, Senior Tax Policy Advisor. OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE The CHAIRMAN. The hearing will come to order. Benjamin Franklin once said, ‘‘An investment in knowledge al- ways pays the best interest.’’ For more than a century, America has invested in education, and this investment has paid ample dividends. For older generations, up to age 64, the United States ranks second in the world in col- lege graduation rates. But for younger generations, the United States is slipping. For those ages 24 to 35, the United States has fallen to 16th in the world. And in today’s global economy, an edu- cation is even more important than ever. In these tough economic times, as job markets get even more competitive, this is even more apparent. And yet, American fami- lies face skyrocketing college costs. In the last 2 decades, the price of higher education has grown at 19 percent a year, 4 times faster than inflation. College costs are growing at twice the pace of med- ical care. These rising costs hit low-income families especially hard. A low- income family has to spend the equivalent of 72 percent of its in- come to send a child to college. Compare that to 14 percent for a higher-income family. This debt burden often deters young people from going to college at all and has harmful ripple effects throughout our economy. Dif- ferences exist even for students with similar high test scores. Stu- dents from high-income backgrounds were about 32 percent more likely than those with the same test scores but from low-income backgrounds to enroll in college. (1) VerDate Nov 24 2008 21:01 Sep 06, 2013 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 R:\DOCS\82271.000 TIMD 2 That means some of our best and brightest students never have the opportunity to develop their talents. This leads to fewer sci- entific breakthroughs, fewer innovative companies, and a weaker overall economy. Since 1954, Congress has provided tax cuts for families with chil- dren pursuing a college education. These provisions help families cover past, present, and future expenses. The student loan interest deduction provides students a tax deduction for interest paid on a student loan. The tax code also encourages families to save for future edu- cation expenses by providing tax-free savings vehicles. Five-twenty- nine programs and Coverdell accounts allow families to save for college without paying taxes on the earnings. Distributions from these accounts can be used to pay education expenses. The tax system provides the most tax benefits for current ex- penses. Under our current tax system, there are helpful provisions that exclude certain financial assistance from income. For example, scholarships and fellowships that cover qualifying education ex- penses are excluded from income of the student. The tax code also contains
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