In early November, Congresswoman Diane Black (R-TN) and Congressman Danny Davis (D-IL) introduced H.R. 3393, The Student and Family Tax Simplification Act. The legislation consolidates the American Opportunity Tax Credit (AOTC), the Lifetime Learning Tax Credit, and the tuition deduction into a single AOTC. The reconfigured AOTC is made permanent and adjusted for inflation starting in 2018.
AACC strongly supports H.R. 3393. It is consistent with AACC’s long-held priorities in the tax area. This bipartisan legislation was developed in response to stakeholder recommendations to the House Ways and Means Committee. David Baime from AACC provided testimony to this panel last April.
H.R. 3393 increases the AOTC’s refundability to $1,500 from $1,000, and makes it easier for students to qualify. Under refundability, an individual whose tax liability is less than the calculated credit receives a check for the difference from the government. Currently, a family would have to have $4,000 in expenses to claim the $1,000 refundable credit; under the new bill, low-income families could claim the full $1,500 refundable credit after only $1,500 in eligible expenses.
Critically, H.R. 3393 allows needy students to both receive a Pell Grant and AOTC benefits, while ensuring that their combined amount does not exceed a student’s overall budget. Under current law, a students’ AOTC eligibility (covering tuition and course materials) is reduced by any nontaxable grant aid they receive, including Pell Grants. The result is that an estimated 1 million college students with unmet financial need do not receive AOTC benefits. The vast majority of these students attend community colleges. AACC has long sought redress of this highly inequitable, nonsensical policy that denies assistance to those who need it most.
H.R 3393 also lowers the income phase-outs for AOTC eligibility, as part of the legislation’s general thrust of pushing tax benefits down the income spectrum. This too is consistent with AACC’s priorities. Currently, AOTC benefits can go to those with incomes up to $180,000, while, as stated, those receiving Pell Grants often receive nothing.
Despite its many positive features, H.R. 3393 has not garnered the endorsement of many prominent higher education groups, in essence because it shakes up the status quo in a way they do not find acceptable. This makes robust support from community college institutional leaders all the more important. In the weeks ahead, AACC will be requesting your specific help to build momentum behind this legislation. It is extremely encouraging to see a bi-partisan bill emerging, in the House of Representatives no less, with so much to recommend it.