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The Ticker: Make College-Savings Tax Breaks More Equitable, Group Urges

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Make College-Savings Tax Breaks More Equitable, Group Urges

By  Chronicle Staff
May 28, 2014

Report: “Harnessing the Tax Code to Promote College Affordability: Options for Reform”

Author: Joe Valenti, director of asset building; David A. Bergeron, vice president for postsecondary education; and Elizabeth Baylor, associate director of postsecondary education, all at the Center for American Progress

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Report: “Harnessing the Tax Code to Promote College Affordability: Options for Reform”

Author: Joe Valenti, director of asset building; David A. Bergeron, vice president for postsecondary education; and Elizabeth Baylor, associate director of postsecondary education, all at the Center for American Progress

Organization: Center for American Progress

Summary: The federal government provides billions of dollars in tax breaks to help make college more affordable, but many of the deductions and credits favor middle- and upper-income families who are already able to save for college. In a report released on Wednesday, the Center for American Progress proposes several changes that would more carefully target the tax-code benefits. The report also endorses a proposal by Rep. Dave Camp, the Michigan Republican who is chairman of the U.S. House of Representatives’ Ways and Means Committee. Mr. Camp has suggested imposing a 1-percent excise tax on college-endowment earnings if the endowment’s assets exceed $100,000 per student.

Recommendations:

  • To encourage saving for college under a more-equitable tax system: Congress should establish an annual limit for contributions to 529 college-savings plans and cap the overall amount that builds up, tax free, in such plans at $200,000.
  • To help families paying for college: The timing and amount of refunds available under the American Opportunity Tax Credit should be adjusted so that eligible middle- and and low-income families can better take advantage of it to cover college expenses when they are incurred.
  • To help students manage their college debt: Convert the deduction on student-loan interest into a tax credit, which would benefit lower-income borrowers as well as those with higher incomes.

Bottom Line: The Center for American Progress says its proposals offer a fairer way for the government to provide tax breaks that encourage college savings and affordability.

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