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Georgetown University’s Newspaper of Record since 1920

The Hoya

Georgetown University’s Newspaper of Record since 1920

The Hoya

Proposal Extends College Tax Credit

President Barack Obama announced his proposal to permanently extend the American Opportunity Tax Credit past its current expiration date in 2017 as part of his effort to improve college affordability for middle-class students. The changes, which first appeared in the State of the Union address, reappeared in his budget proposal released Monday.

“Everybody understands [higher education] is the key to success for our kids in the 21st century,” Obama said in the State of the Union. “It’s something that’ll train our workforce so that we can compete with anybody in the world.”

The American Opportunity Tax Credit, which was introduced during the American Recovery and Reinvestment Act of 2009, currently gives students from families making less than $180,000 a year up to $2,500 per year in tax deductions.

“What we have is a pretty complex system of tax incentives for higher education and families are pretty frequently unable to take advantage of the incentives,” White House Domestic Policy Director Cecilia Munoz said in a conference call with college media outlets the day after the State of the Union. “The president is proposing to simplify and consolidate these tax incentives using the structure of the American Opportunity Tax Credit, which is primarily targeted to maximize our ability to help students.”

Anthony Carnevale, the director of the Georgetown University Center on Education and the Workforce, explained that Obama’s proposed change aims to redistribute higher education funding, in which the upper classes would lose tax credits while the middle class would gain them.

“[Obama] believes that there needs to be a shift in the focus of public assistance for higher education toward those who are least advantaged,” Carnevale said. “He believes it’s a zero-sum game.”
The plan is currently facing stiff resistance in Congress from Republicans and Democrats alike. Carnevale said the plan, especially combined with the unlikely to pass while Obama is still in office due to opposition from a significant amount of the electorate.

“It is a bipartisan nonstarter,” he said of the proposed changes. “If you ask the American public what they don’t want taken away from them … it’s the middle class entitlements, one of which is the higher education tax benefits.”

Initial backlash against the plan resulted from the changes to the 529 savings plan. Currently, with the 529 plan, families can place money in a fund and later withdraw it tax-free to pay for their children’s higher education costs. Obama proposed to eliminate the tax-free status of the 529 plan to offset the increased costs resulting from the permanent extension of the American Opportunity Tax Credit and free community college.

“Eighty percent of the benefit for 529 programs comes for households with an income over $250,000, so we are focusing on a structure that targets the savings for folks who need it the most,” Munoz said in the conference call.

Obama dropped that proposed change a week ago, citing bipartisan opposition to the cuts on 529 plan benefits as fueling his decision to stop pursuing this portion of the plan. Carnevale said that while the debate over educational funding may not have the same implications at Georgetown as it does at public universities, Georgetown students and parents would be affected by changes in the tax breaks for families.

“Georgetown and the private [universities] rely on the private wealth of families to get their tuition fees,” he said. “[But] once you start playing with the tax code, you’re talking about Georgetown parents.”
Without the savings from the 529 plan, however, the plan faces problems simply because of limited money in the federal budget. Currently, advocates for higher education argue spending must compete with those who want increased spending on military expenditures, social security and Medicare, among other programs.

“The bottom line is [that] money’s not there,” Carnevale said. “They’re fighting for a smaller and smaller piece of the pie.”

Carnevale estimated that at least a few hundred million dollars were needed to implement the president’s plan and better the United States’ public higher education.

“We’re going to have to find the money for anything we do in the current expenditures,” he said. “So something’s got to come out of somebody’s pocket.”

Another budgetary constraint is the program of income-based repayment for student loans. It allows former students to pay off loans as a percentage of their salary rather than a fixed monthly rate.

Carnevale explained that the income-based repayment system is only financially viable if the government makes responsible loans in the first place to students who can find jobs that pay well for their level of education.

“We can’t afford to keep funding education that goes nowhere,” he said. “Economic value matters. It’s not the only consideration but it matters.”

University Director of Media Relations Rachel Pugh could not say for sure how students attending Georgetown in the future would be affected if Obama’s plan is implemented, though she reaffirmed a commitment to Georgetown’s current financial aid system.

“[We don’t know] about the potential impacts to future students or families,” she said. “We remain committed to our need-blind, meet-full-need policy.”

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