The White House thought it had a deal.
For months, Clinton Administration aides had been frustrated by colleges’ tepid support for the President’s proposed tax breaks for tuition, which promised to return tens of billions of dollars to the pockets of students and their families.
Mr. Clinton’s advisers wanted foot soldiers for the looming legislative war over how to shape the first major tax cut since 1981. So they hatched a plan: Package the President’s proposals with benefits for low-income students, who were largely shunned by the Clinton tax breaks, and win college leaders over.
On January 27, 1997, a damp, chilly evening in Washington, two dozen college lobbyists crowded into a conference room in the Old Executive Office Building. In streamed the Administration team: the Secretary of Education, the Deputy Secretary of the Treasury, the director of the National Economic Council, and a gaggle of other aides.
They explained that the next day, when Mr. Clinton previewed the higher-education part of his planned 1998 budget at a press conference, he would bring good tidings. Among the proposals: A $300 increase in the maximum Pell Grant for needy students; a plan to make the grants available to hundreds of thousands of financially independent students; and a 50-per-cent cut in the fees that borrowers pay on student loans.
Oh, and there was one more feature: As if it were an afterthought, the Education Secretary, Richard W. Riley, mentioned that the Administration had altered its proposed $1,500 tax credit for tuition so that it would not be refunded to students from families too poor to pay income taxes.
During his presidential campaign, Mr. Clinton had described his “Hope Scholarship” tax credit as a way to expand access to college for all. The talk was far different on this day. “This is a middle-class tax break, first and foremost,” said the President’s economic adviser, Gene B. Sperling. Low-income students, he said, would be helped by the bigger Pell Grant and other elements of the budget package.
The President wants to use the tax bill to help education, while the Republicans in Congress want to cut capital gains for the rich, Mr. Sperling argued to the uncertain gathering. If you don’t support us, he warned, they will shape the bill, and they’ll find someone else who wants the billions of dollars intended for students and their families.
When the pitch was over, the room fell silent. Then David L. Warren, president of the National Association of Independent Colleges and Universities, rose to his feet. “We’re with you,” he said. Leaders of the American Council on Education added their support.
Officials of a few other groups, however, including the American Association of State Colleges and Universities, offered no such endorsements. For them, there was still no deal.
Few moments better capture the policies and the posturing behind the process that resulted in the most significant federal higher-education legislation in three decades: the Taxpayer Relief Act of 1997, which, beginning in January, will deliver $40-billion in tax breaks to students and their families over five years.
Interviews with more than three dozen college officials, Administration aides, lawmakers, and others reveal many strands of the story of how the tax bill took shape: the conflicting tactics that groups like the state-college association and the American Council on Education used to try to get what they wanted; the relevance, or irrelevance, of academe’s leaders in the rarefied political atmosphere in which the deal-making took place; the ability of one Congressman to threaten long-held tax breaks for graduate students and faculty members; and the contentious, complicated relationship between the Clinton Administration and college leaders.
More than anything else, however, it is a tale of how politics shapes -- and subverts -- education policy.
To supporters of the Clinton plan, the story is about how a shrewd Democratic team built support for an enormous infusion of federal funds to higher education, despite the country’s budget-cutting mood and intense opposition from Republicans.
To others, it is about how election-year politics led the Administration to abandon the students most in need of federal aid -- and how college officials, blinded by dollar signs, went along for the ride.
AN APPEAL TO THE MIDDLE CLASS
The Hope Scholarship, a central plank on which President Clinton based his successful re-election campaign, has its roots in his political nadir: the Congressional elections of 1994.
A few weeks after Republicans had won control of Congress on a platform of balancing the budget and cutting taxes, President Clinton introduced his “Middle-Class Bill of Rights.” It called for a balanced federal budget, a tax credit for every child, and a $10,000-a-year tax deduction for the cost of postsecondary education.
Liberals attacked the plan as a betrayal, and Republicans called it a desperate attempt by a Democratic President to steal from their playbook. College officials criticized the tuition deduction because it would give bigger subsidies to people with high incomes than to those in lower tax brackets. The Middle-Class Bill of Rights went nowhere.
Administration aides were disappointed by colleges’ lack of support. But over the next few months, the two groups teamed up against Republican efforts to slash federal student aid. President Clinton twice turned G.O.P. plans to cut financial aid to his political advantage. In May 1995, Republican lawmakers proposed ending the interest payments that the government makes on student loans for qualified borrowers while they are in college. Then, in the fall, they introduced a plan to balance the budget in seven years, a measure that would have cut student aid significantly.
A clash of wills over the budget plan caused the government to shut down for several days in late 1995. Congressional Republicans absorbed most of the resulting public anger, and the President, viewed as education’s savior, scored big political points. He would remember the lesson.
BIG NUMBERS IN OPINION POLLS
As the White House began preparing its fiscal-1997 budget plan that fall, aides to Mr. Clinton knew they wanted to do something to expand access to higher education. A consensus emerged that the only way to do this would be through the tax code. Given the drive to balance the budget, says Marshall S. Smith, the Deputy Education Secretary, proposing big increases in spending on Pell Grants or other aid “wasn’t in the cards.”
In one of a series of meetings between top Education Department officials and White House aides, Dr. Smith mentioned to Dick Morris, the President’s political consultant at the time, that the vast majority of undergraduate students were in their first two years of college. That fact, Mr. Morris says, along with polls showing the public’s high respect for the job training provided by community colleges, helped him realize that “for the same amount of money we were putting into the college deduction, we could make the first two years of college free for the vast majority of kids in two-year colleges.”
Officials of the Education and Treasury Departments and other agencies began crafting proposals. In November 1995, aides traded memos suggesting that the 1997 budget plan include a $1,600-a-year tax credit for freshmen and sophomores. The proposal racked up big numbers in White House public-opinion polls, Mr. Morris says, and many Administration aides liked it.
Not all of them, though. David A. Longanecker, Assistant Secretary for postsecondary education, acknowledges that he believed that direct grants would give much more help to the neediest students. Top economic advisers in the White House concurred.
Another group, led by George Stephanopoulos, a senior adviser to the President, liked the tax credit but found the timing terrible. Their view, says Mr. Sperling, was that in the midst of a fight over shutting down the government and balancing the budget, “it would be ill-advised if we came out with a new proposal that costs a lot of money.”
“George’s view carried the day,” Mr. Sperling says. The tax credit was not included in the budget plan that Mr. Clinton offered in March 1996.
The idea had legs, though. As the spring progressed, officials of the Education Department, among others, worked quietly on iterations of the tax credit. Meanwhile, the Presidential election campaign was heating up -- and not in Mr. Clinton’s favor. Word was growing of the 15-per-cent, across-the-board tax cut that the Republican candidate, Bob Dole, was preparing to introduce, and the Whitewater investigation was back in the newspapers.
Mr. Morris and other advisers thought that Mr. Clinton needed to make a splash. The place to do it, they decided, was a high-profile speech at Princeton University’s commencement on June 4, 1996.
From early May until just hours before the speech, aides from Education and Treasury and the Office of Management and Budget worked feverishly to hone the details of the tax-credit proposal. They worked quietly, to shield the plan from the Dole campaign and the news media. “We were not to discuss it with anybody,” says Maureen McLaughlin, Deputy Assistant Secretary of Education for policy and planning.
“Anybody” included officials of Washington’s higher-education associations, whose advice the Clinton Administration often seeks on policies that affect colleges. They knew nothing about the Hope Scholarship until the morning of June 4, when Secretary Riley met with them and told them what the President would announce in his speech that afternoon.
LITTLE ASSISTANCE FOR LOW-INCOME STUDENTS
At Princeton, Mr. Clinton added to his proposed $10,000 deduction, suggesting a credit that would let taxpayers subtract up to $1,500 a year from their federal tax bills for the costs of the first two years of college. The plan, he said, would help “make the 13th and 14th years of education as universal to all Americans as the first 12 are today.”
College leaders cheered the President’s continuing support for education, but many doubted his tactics. Using the tax code would help middle- and upper-income students recoup college costs, they argued, but would offer little to Americans who could not afford college at all.
That was especially true, they said, because Mr. Clinton’s plan would cut the value of a student’s tax credit by the amount of other federal financial aid he or she received, and require students to sustain a B average to keep the credit for a second year. Low-income students, on average, have lower grades than wealthier students.
Even though a version of the Hope Scholarships had been under study for more than a year, many college officials suspected that the proposal had materialized at the last minute. “In an election year, one should expect that everything that is read, heard, and said is aimed at good politics rather than good policy,” Edward M. Elmendorf, vice-president for government relations at the state-college association, said at the time.
In the weeks after Hope’s unveiling, the President talked constantly about the tax credit. Apart from Mr. Elmendorf’s early jabs, though, higher-education officials on the whole said little about it. Most of them shared his group’s concerns about the Clinton proposals and were glad that someone was airing them. But they did not want to undercut the President in campaign season, or to risk blowing a possible $40-billion infusion for higher education. “We couldn’t publicly come out and say, ‘We’re real worried about this,’ because that would have shot them in the back,” says Terry W. Hartle, senior vice-president for government and public affairs at the American Council on Education.
The college groups walked a “fine line,” Mr. Hartle says, between expressing support for the Administration’s goals and “simultaneously trying to wrestle them into making some changes we thought were crucial.”
What he sees as savvy politics looked like a sellout to Lawrence E. Gladieux, executive director for policy analysis at the College Board. “Most of the people representing higher ed seemed to figure, “Look, here’s a lot of money being put on the table. Let’s not say much now -- after the election, we can try to redirect it toward something we want more.’ It was a tacit conspiracy to look the other way.”
Mr. Gladieux says his two main problems with the plan were that it would not do what Mr. Clinton said it would -- help people go to college who otherwise wouldn’t have -- and that it might encourage colleges to raise their tuitions.
After a chance encounter on a street corner near their Washington offices, Mr. Gladieux and Robert D. Reischauer, an economist at the Brookings Institution who had previously headed the Congressional Budget Office under the Democratic majority, decided to co-write a critique of the Hope credit for The Washington Post. The September 4 opinion piece, which would be cited often in attacks on the plan, said: “While tuition tax relief may be wildly popular with voters and leave Republicans speechless, it won’t achieve the President’s worthy objectives for education, won’t help those most in need, and will create more problems than it solves.”
ENTICEMENTS TO WIN OVER CRITICS
Voters seemed to disagree. Judging from surveys, the Hope credit -- and Mr. Clinton’s general support for education -- helped him win re-election. Critics of the tax credit, who had hoped that the President might then ditch the plan, got a jolt when Mr. Clinton, in his first major post-election speech, declared enactment of the credit to be among his top three priorities for a second term.
To prove they were serious about Hope, his aides hustled to get the tax credit into legislative form and intensified their efforts to sell it to college leaders.
It didn’t go well.
“We started getting an awful lot of, ‘This is nice, but...,’” Dr. Longanecker says. The criticisms echoed those of Mr. Gladieux: that the credit offered little to low-income students, and that it might inflate tuition and grades alike.
The response was frustrating to Administration aides. “The White House was living under this cloud of having proposed something they thought was their centerpiece in terms of education benefits, but was controversial in the education community itself,” says Leon Panetta, Mr. Clinton’s chief of staff at the time.
The President’s advisers tried to assure college leaders that if they were patient, their qualms would be resolved. The Administration sent signals, for instance, that the B-average requirement would eventually vanish.
What to do about low-income students was a thornier matter: The tax code, by its nature, offers little assistance to poor people, and Treasury Department officials worried that making the tax credit refundable to those who do not earn enough to pay income tax might encourage people to pretend to be students.
In White House discussions, some aides also wondered why low-income students needed the tax credit when they were already getting Pell Grants. The counter-arguments were that federal support for the Pell program had ebbed, and that a 1992 change in federal law had denied eligibility for the grants to many students who were financially independent of their parents. Reversing that change was the top priority of the state-college association, the most vocal foe of Hope among higher-education groups.
In January 1997, the Administration refined its strategy: Make the tax credit non-refundable to those whose incomes are too low to be taxed, thus easing the Treasury Department’s concerns, but at the same time help low-income students by proposing a $300 increase in the maximum Pell Grant and a fix of the law on independent students. The changes would provide $1.7-billion more a year for Pell Grants, increasing spending on the program to $35-billion over five years -- about the same as the cost of the Hope tax credit and deduction.
With high expectations, White House aides presented the package at the late-January meeting in the Old Executive Office Building. Yet instead of embracing it, one college lobbyist says, “AASCU pissed all over the deal.”
The state-college association applauded the Administration for reaching out to low-income students with the Pell Grants plan. But it wrote to its members that the White House had moved “in the wrong direction” by making the credit non-refundable.
From that point on, the Administration essentially gave up on the group -- a leading voice for public higher education -- and, through an intensive lobbying campaign, focused on winning support elsewhere.
The campaign was aimed primarily at getting supporters to speak up, but Administration aides sometimes tried to clamp down on critics. In late January, for instance, Education Department officials called Donald W. Stewart, president of the College Board, to complain about Mr. Gladieux’s critiques. Similar calls were made to other groups over the months that followed.
At the “center of the tree” of the Administration’s lobbying campaign, as he describes it, was Barry Munitz, chancellor of the California State University System and chairman of the Board of Directors of the American Council on Education, higher education’s main umbrella group. To the Administration, he had the added allure of being the person to whom the presidents of the 23 California State campuses -- members of AASCU all -- reported. If the state-college group’s lobbyists would not toe the line, White House aides figured, let’s go around them.
The campaign’s first payoff came in late February 1997, during the council’s annual meeting, in Washington. Mr. Clinton was set to appear, and Dr. Munitz wanted to deliver the endorsement that the President badly wanted.
Dr. Munitz and Mr. Hartle, the council’s senior vice-president, spent much of a weekend holed up in a hotel room trying to come up with a resolution on which White House aides and members of the council’s board could agree. Dr. Munitz says he told board members that the higher-education groups should “put aside their parochial differences” to rally behind the Administration’s tax plan.
“Academics are much more in love with distinctions than with finding common ground. I told them, ‘If we don’t demonstrate this time that we know how to set aside this love with what we don’t agree on, we’re going to lose the whole package.’”
On February 24, the President and a team of aides met privately with Dr. Munitz, the council’s president, Stanley O. Ikenberry, and others. Mr. Clinton told the college officials that the Administration would work with them to ease their concerns about the tax breaks. That afternoon, Dr. Munitz presented an ebullient President with a resolution that generally endorsed Mr. Clinton’s plan. The same day, the American Association of Community Colleges delivered an endorsement of its own. As the playing field shifted to Congress, Administration officials could say, with a straight face, that they had higher education’s support for their tuition tax breaks -- with or without support from the recalcitrant state-college association.
IN CONGRESS, ATTACKS AND COMPLAINTS
From then through mid-April, Congressional committees held a set of hearings on the education tax breaks. The proceedings were remarkably similar: Administration officials explained the tax breaks, and economists and lawmakers from both parties ripped them apart. Republicans portrayed the program as too costly and cumbersome, and Democrats said the tax credits would help the wealthy and ignore the poor.
In their own testimony, college lobbyists continued to take different tacks: The education council offered general support, with reservations, while the state-college association welcomed Mr. Clinton’s support for education and then blistered his proposals.
The real action, however, was occurring in closed-door meetings, at which Republican Congressional leaders and White House officials were negotiating the framework for a balanced budget.
They completed their work -- sort of -- in early May. On May 2, Mr. Clinton announced that a deal had been struck to set aside $35-billion, of a total of $135-billion in tax relief over five years, for his $1,500 tax credit and $10,000 deduction; to raise the maximum Pell Grant by $300, to $3,000; and to make the grants available to 350,000 independent students.
Almost immediately, however, Republicans disavowed the deal. Members of the Senate and House of Representatives tax-writing committees -- left out of the negotiating process -- said they were not bound by it.
As the parties staked out new bargaining positions, the Administration had the upper hand. Mr. Clinton’s popularity was high, and surveys showed that Americans favored his tax cuts, tailored narrowly to help education and the middle class, over the “Republican” tax cuts for Capital gains and estates, which were seen as favoring the wealthy.
On May 18, after two weeks of painstaking negotiation, details of a revised agreement were worked out. It would provide “roughly $35-billion” in tax relief for postsecondary education, “consistent with the objectives” of Mr. Clinton’s proposed tax credit and deduction. But at the insistence of G.O.P. lawmakers like Bill Archer, chairman of the House Ways and Means Committee, the language was carefully worded to give Republicans room to propose other tax breaks that would also help people pay for college.
“Under our Constitution,” a prickly Mr. Archer said then, “tax bills originate in the House, not the White House.”
Throughout May 1997, as the House and Senate tax-writing committees prepared their tax plans, the Clinton Administration turned up its pressure on colleges.
In sometimes heated meetings with college lobbyists, Education Department officials urged the groups to have their member colleges flood Capitol Hill with expressions of support for the Administration’s proposals.
College lobbyists were reluctant to do so. Besides having mixed feelings about the Hope plan, they also passionately supported some other tax breaks favored by lawmakers, including deductions for the interest paid on student loans and for the value of educational aid provided by employers.
“Our strategy was to try to support both sides, because we liked some of what each had to offer,” says one college lobbyist. “That wasn’t enough for the Administration. They thought our job was to help them, and their mantra was: ‘It’s $35-billion for Hope, and if you want anything else, it should be on top of that.’ They were often frustrated that we weren’t out there in our cheerleader outfits.”
HOPING FOR HELP FROM THE SENATE
On Capitol Hill, Administration aides had essentially written off Mr. Archer and the Ways and Means Committee. They had higher hopes for the Senate Finance Committee, given the bipartisan approach of its G.O.P. chairman, William V. Roth of Delaware. The White House seemed to underestimate, however, the extent to which the Senate panel’s Democrats disdained the tax credit and deduction, and how much they resented having been locked out of the negotiations over the outlines of the balanced-budget deal.
In early June, the Senate panel’s Democrats stitched together their own package of tax proposals for education. It included deductions for loan interest and employer-paid tuition, a plan to lift the cap on the value of capital-improvement bonds that a private college could have outstanding at any time, and proposals aimed at helping families save for college. It also contained a scaled-back version of the Hope tax credit, and it omitted the President’s $10,000 deduction entirely. The price tag was $32-billion.
The White House promptly summoned the committee’s nine Democrats to a meeting with Vice-President Gore, who told them that Mr. Clinton’s plan was the “Democratic” tax proposal, and that the Senate Democrats were to go along.
“The push back by the members was, ‘We’re elected Senators, and we think these things represent a better policy, and cost less money,’” says a Senate Democratic aide.
Mr. Clinton’s advisers knew that they needed to embrace some of the other tax ideas, but feared that giving too much ground now could embolden Congressional leaders to ignore the $1,500 credit and $10,000 deduction entirely.
In a series of calls to reporters in early June, Administration aides said they were altering their own proposals to appease critics, dropping the B-average requirement and agreeing not to subtract a student’s federal financial aid from his or her tax credit.
For the first time, they also expressed support for the loan-interest deduction, the lifting of the bond cap, and other priorities of both Republicans and Democrats in Congress. Their backing came with a caveat, however: They would support those measures only if the money for them came from outside the $35-billion that they argued was already reserved for the Hope credit and the deduction. As one Administration official explains, “It made sense to put the Republicans on the hot seat to include the items they had publicly supported, and to put it on their side of the ledger.”
Most college lobbyists saw desperation in the move. “The lack of support from the Senate Democrats brought them to a very gutsy place,” says one lobbyist. “You’re down and feeling attacked. In response, you unveil an even bolder proposal. I thought they were out of their minds.”
SURPRISING THREATS TO CHERISHED TAX BREAKS
Officials of the Administration and of colleges alike had expected Mr. Archer, the Ways and Means chairman, to skimp on college tax breaks, and he did just that in the bill he unveiled on June 9. His plan contained about $31-billion in tax breaks for education, which he said met the “roughly $35-billion” standard assured by the budget deal.
His plan omitted Mr. Clinton’s $10,000 deduction, instead proposing deductions intended to encourage families to save for college. It included a version of the President’s tax credit, although modified to be worth 50 per cent of the first $3,000 that a student spent on college, rather than 100 per cent of the first $1,500. Mr. Archer, convinced by economists’ views that the influx of federal tax funds would spur colleges to raise tuitions, felt that forcing students to match every dollar they got from the credit with a dollar of their own would dissuade colleges from increasing fees.
If college officials were disappointed by what was missing from the Archer bill, they were dismayed by what was in it: taxes on the tuition breaks that colleges provide to graduate students and the children of employees, and on the pension assets of Teachers Insurance and Annuity Association-College Retirement Equities Fund, higher education’s main pension company.
Aides to the chairman say he sought to revoke TIAA’s tax exemption because the pension fund had become a full-fledged insurance business competing with taxable entities.
Others accused Mr. Archer of having baser motives, arguing that he acted at the behest of VALIC, a pension company that competes with TIAA and is based in his district in Texas. Its parent company, American General Group, contributes heavily to the G.O.P. and gave Mr. Archer $1,000 toward his 1996 re-election campaign.
Hours after Mr. Archer announced his bill, TIAA-CREF executives zoomed into Washington to begin a lobbying campaign that, over the next two months, would involve more than 40 employees and consultants.
From mid-June to late July, the Senate Finance Committee received more than 1,000 letters, faxes, and e-mails about the pension fund -- “more than on any other single issue” in the tax bill, a Senate Democratic aide says.
The only other issue that came close was the proposed tax on tuition waivers for graduate students and research assistants. College officials were shocked that Mr. Archer had taken aim at that benefit. They assumed that the aides who wrote the bill’s language had nicked graduate students by mistake, in what they saw as a misguided attempt to rein in benefits for the children of faculty members.
Graduate students, on the other hand, felt that Mr. Archer had gone after them on purpose. They noted that his bill proposed extending -- for undergraduate work, but not for graduate study -- the tax break that allows employees to deduct tuition aid paid by their employers. They also knew that some Republican lawmakers were still angry about the vitriolic fight that graduate students had waged in 1995 to protect their interest payments on student loans.
An aide to Mr. Archer denied at the time that “anybody in Congress is gunning” for graduate students. G.O.P. aides also made clear that the primary targets were the children of college employees, who, they said, did not deserve a break on the high tuition that other students were forced to pay.
“Tuition costs are rising like crazy, and who sets the tuition price? People who work at universities,” Kenneth J. Kies, chief of staff of the Joint Committee on Taxation, said in June. “And who are the only people who don’t pay tuition? People who work at universities.”
Still, aides to Mr. Archer denied that graduate students had been accidental victims. “Most people pay for their own education,” said one staff member. “If you’re one of the lucky few who gets to be a graduate teaching assistant, the kid sitting next to you might feel like it’s unfair.”
Graduate students insisted that taxing the tuition waivers of teaching assistants would force many of them out of school. Though it lacked TIAA-CREF’s big bucks, the National Association of Graduate-Professional Students unleashed its own e-mail and telephone assault on Congressional offices.
College leaders, for their part, may have reacted lukewarmly to Administration pleas that they lobby for the Hope proposals, but they rallied when the White House asked them to attack Mr. Archer’s bill.
At a press conference on the morning of June 11, the day that the Ways and Means panel took up the Archer bill, the heads of three major college associations joined Treasury Secretary Robert E. Rubin and Mr. Riley, the Education Secretary, at a press conference to criticize the measure.
The department solicited statements condemning Mr. Archer’s bill from higher-education groups. Even the American Association of State Colleges and Universities provided one, although its leaders were not asked to join the other officials on the dais; Mr. Elmendorf, the group’s top lobbyist, stood alone in the back of the room, handing out a statement outlining the association’s position.
Compared with the bill passed by the Ways and Means panel on June 12, college officials and Administration aides far preferred the Senate version, released by Mr. Roth, of the Finance Committee, five days later. It contained more money for education tax breaks, including a set of proposals aimed at encouraging saving for college; proposed making permanent the tax deduction on employer-paid tuition, for graduate and undergraduate students alike; and omitted the proposed taxes on TIAA and tuition waivers. Like the House bill, the Senate plan ignored the $10,000 deduction.
The Senate bill sought a compromise on Mr. Clinton’s Hope Scholarship, though there was “very little support” for it on the Finance Committee, aides say. “Senator Roth thought it would be unrealistic not to do something” with the President’s proposal, one Republican aide says, because Mr. Clinton was sure to veto any bill without it.
The Senators shared Mr. Archer’s concern about tuition inflation but recognized that Mr. Clinton wanted to help community-college students. So they modified the House version of the tax credit, to give two-year students a credit worth 75 per cent of their first $2,000 in college costs.
AN IDEALISTIC MISSION TO CAPITOL HILL
Throughout this period, a band of college lobbyists was canvassing Capitol Hill on what looked like a fool’s mission. The group, made up of Barmak Nassirian, of the state-college association; Ivan Frishberg, of the U.S. Public Interest Research Group; and Erica Adelsheimer, of the U.S. Student Association, among others, spent May and June trying to persuade Senators to make the Hope tax credit refundable to low-income students.
They were working against all odds: The Administration had abandoned the idea in January; most House and Senate Republicans were dead-set against it; and the major higher-education groups thought that pushing the idea might put the entire set of college tax breaks at risk by angering both the Administration and Republican leaders.
Proponents of refundability were not dissuaded. Education Trust, which works on behalf of low-income students, amassed data showing that a non-refundable credit would leave up to 40 per cent of the students in some states in the cold. Those figures succeeded in helping the lobbyists sell the idea of a refundable credit to a surprisingly large group of Senators -- as many as 50, they contend. Some, like the liberal Democrat Paul Wellstone of Minnesota, were predictable. But they also swayed Republicans like John Chafee of Rhode Island and Olympia Snowe of Maine.
“There were a lot of people who didn’t want to have the criticism made later, when the smoke cleared and people realized who got the tax credit, that this was just a middle-class giveaway,” says one Senate Republican staff member.
In late June, as the Senate prepared to vote on the Roth tax plan, Mr. Chafee, with two Democrats, Mr. Wellstone and New Mexico’s Jeff Bingaman, agreed to sponsor an
amendment to make the credit refundable. However, they were unable to come up with the $6-billion needed to finance such a change, and on the final vote on the bill, the weary Senators shouted a resounding “No” to the idea.
LAST-MINUTE TWEAKS BY THE ADMINISTRATION
Three days after the Senate vote, as negotiations over the tax bill between the House and the Senate, and between Congress and the White House, were set to begin, the Administration tweaked its education tax breaks yet again.
In a nod to G.O.P. concerns that a dollar-for-dollar credit would inflate tuitions, the White House said its credit would apply to 100 per cent of the first $1,000 a student spent on college, and 50 per cent of the next $1,000.
And in a concession to Congressional Democrats, the White House dumped its widely unpopular $10,000 deduction in favor of a proposal by Representative Charles B. Rangel, of New York, to give students after their second year of college a tax credit, aimed at encouraging “lifelong learning,” worth 20 per cent of up to $10,000 in college costs. The Administration plan also formally incorporated Republican proposals to allow students to deduct loan interest and employer-paid tuition. That lifted the total cost of the Administration’s education-related tax cuts to $42-billion.
The chief areas of disagreement between House and Senate negotiators on education tax breaks were the House’s proposed taxes on tuition waivers and TIAA, and the Senate’s desire to make the deduction for employer-paid tuition permanent and to extend it to graduate education.
Mr. Archer compromised first on the tax on graduate assistants. His aides even shifted their rhetoric to say they had never intended to tax graduate-student tuition waivers in the first place. House Republicans then offered to drop the proposed tax on tuition waivers for college employees if the tax on TIAA remained -- a deal that Senators accepted.
Mr. Archer was adamant, however, about not letting graduate students deduct the value of employer-paid tuition, a Senate aide says. A major motivation, the aide and others say, was that one of Mr. Archer’s staff members had gone to George Mason University’s law school and had been amazed at how many of her classmates were not paying their own way. The aide had paid her tuition in full, because Congress does not pay for its employees’ schooling. “The Congressman didn’t think it was fair that people who have to work to pay for their grad school don’t get a tax break if their employer does not provide educational assistance,” a House Republican aide said.
Mr. Archer won that fight, and graduate students lost.
IN THE END, USING ‘BRUTE FORCE’
Over the last weekend of July, White House negotiators and Republican Congressional leaders met to hash out the few remaining areas of disagreement over the tax bill. Although Administration officials objected to the tax on TIAA and the omission of graduate students from the deduction on employer-paid tuition, they focused on insuring the survival of the two tax breaks for tuition: the Hope credit and the lifelong-learning credit. They succeeded, and the final tax plan contained a total of $40-billion in tax breaks for college students and their families.
“The Administration got what it wanted by brute force,” says a Senate Republican aide.
Now, college officials are preparing for the Hope Scholarship to take effect in January. Already they are fielding questions from students and their families hoping to benefit from the new tax credit.
Most educators agree that the tax breaks are not what they would have chosen if they’d had a real say in the matter.
Some, like the officers of the state-college association, still believe that academe’s leaders forsook the interests of too many students in their quest to rake in $40-billion.
That’s a minority view, however.
“If getting $40-billion to help people buy the product you make is selling out,” says Mr. Hartle, of the American Council on Education, “I hope I have the opportunity to do it again.”