Colleges and Students Would Benefit From White House Tax Compromise

December 07, 2010

President Obama has reached a deal with Republicans that would extend for two years a series of expiring tax benefits, including a research-and-development tax credit and a trio of deductions and credits for college tuition.

Under the terms of the compromise, Mr. Obama agreed to a two-year extension of the Bush-era income-tax cuts in exchange for an extension of unemployment benefits and a payroll tax holiday. Democrats have not signed off on the agreement, and some liberal House members are threatening to block the measure.

The tuition and research benefits are among several noncontroversial tax benefits that were folded into the deal after negotiators reached agreement on the more-contentious cuts. They include a tuition tax credit worth up to $2,500, a student-loan interest deduction worth up to $2,500, and a benefit that allows companies to provide up to $5,250 in tax-free tuition assistance to their employees.

The agreement would renew a tax credit for corporations that give research dollars to colleges and allow individuals to continue to contribute up to $2,000 a year, tax-free, to Coverdell Education Savings Accounts.

The president and lawmakers also agreed to retroactively restore two benefits that expired at the end of 2009: a tuition deduction of up to $4,000 and a benefit that allows Individual Retirement Account owners over the age of 70&frac; to make tax-free charitable gifts, totaling up to $100,000 per year, to eligible charities, including nonprofit colleges.

In a news conference Tuesday afternoon, Mr. Obama said he yielded on the income-tax breaks for wealthier Americans to preserve benefits for the middle class.

"This isn't an abstract debate," he said. "This is real money for real people that will make a real difference in the lives of folks who sent us here."

On Tuesday, the Senate majority leader, Harry Reid of Nevada, said he will proceed with the deal, with some modifications. But the House majority leader, Steny Hoyer of Maryland, was more reticent, saying the chamber would wait for the Senate to act. Some House Democrats have denounced the deal and accused the president of capitulating to Republicans.

Still, the deal may be the best lawmakers can achieve in the dwindling days of Congress's lame-duck session. In the end, Democrats may protest the plan but hold their noses and vote for it.