The compromise tax legislation President Obama reached with congressional leaders provides numerous benefits for higher ed and its students. Several features of the compromise are tax cuts originally enacted during President George W. Bush’s term.
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 last item has been discussed on previous issues of this blog under the “Section 127” debate.
As noted in the Chronicle of Higher Education, it also includes two benefits that expired at the end of 2009. The first is a tuition deduction of up to $4,000. The other allows Individual Retirement Account owners over the age of 70½ to make tax-free charitable gifts, totaling up to $100,000 per year, to eligible charities, including nonprofit colleges.
Will the IRA wrinkle serve to encourage highly wealthy, older folks to make donations? Well, for one thing, the estate tax looks like it will be back.
Eliminated in 2010, the estate tax was due to be reimposed at up to a 55% rate on estates valued over $1 million. Under the compromise language, the rate will max out at 35% and only apply to estates valued at over $5 million. The threat of a return of the estate tax could entice the very wealthy to ramp up their charitable giving.
Now, President Obama needs to sell the deal to wary Democrats, unhappy with many aspects of the agreement. According to the New York Times, Senator Frank Lautenberg (D-NJ) said, “I don’t think it’s a fair deal. I think a ransom was paid, and it was a very high price.” Obama has sent Vice President Joe Biden on a mission to convince his former Senate colleagues that the deal is a good one.
Will the compromise tax deal help President Obama’s re-election chances in 2012? Or will it divide the Democrats as they cede control of the House to Republicans? No doubt that negotiators in the Administration and Congress will seek to reach agreement in the few days left in 2010. As for now, it appears that higher education advocates have succeeded in making student needs an important part of the discussion.