Families across Iowa are squeezing the most out of summertime before the new school year gets into full swing. It won’t be long before the dog days of August give way to homework, Friday night football games and school buses joining the morning commute.
Before school doors open, parents will open their wallets to buy back-to-school supplies, clothes, shoes and electronics. For those who doubt whether taxes influence consumer behavior, the popularity of Iowa’s 11-year-old sales tax-free weekend speaks for itself.
Yet, this tax break is just a drop in the bucket for students heading off to college. Sticker shock sets in quickly after tallying up tuition, textbooks, fees and room/board expenses.
At the same time, everybody understands that an advanced degree or vocational training is an investment in the future.
That’s why, from my leadership position on the tax-writing Senate Finance Committee, I fight for and secure tax policies to help families and individuals save and pay for higher education. Earning an advanced degree, enrolling in a vocational school or receiving job re-training stitches together an employability safety net that can help individuals gain valuable work experience, survive economic downturns and climb the ladder of prosperity.
As then-chairman of the Finance Committee, I made sure to include key education provisions in the 2001 tax law that allow families to deduct the cost of higher education expenses; protect students from arbitrary limits on their student loan interest deduction; help workers benefit from tax-free treatment of employer-provided education assistance; and encourage parents, grandparents and other family members to contribute to state-run college savings plans called Section 529 plans by ensuring that distributions from these plans would be tax-free. The tax-free treatment of distributions helped these savings plans take off. A few years ago, I worked successfully to make the favorable tax treatment given to Section 529 plan distributions a permanent fixture in the federal tax code. Thousands of Iowans participate in College Savings Iowa, our state’s 529 plan.
Unfortunately, Congress has yet to make permanent the other education tax incentives from the 2001 law. Figures from 2004, the most recent data available, show that 35,238 families, 132,046 students and 48,895 teachers in Iowa saved money using the education incentives I secured in the 2001 tax laws. Since then, Iowans have saved at least $257 million from these expiring federal education tax incentives. It would be devastating for families and students if these education tax provisions are not extended.
That’s why I’ve introduced legislation extending the following incentives to help keep higher education affordable and accessible to more Iowa families: the above-the-line deduction for higher education expenses, including tuition; the $2,000 contribution limit and income phase-out limits for Education Savings Accounts; and the ability to use tax-free funds from an education savings account to pay for K-12 expenses. My bill also would make permanent: the deduction for classroom supplies and related expenses of elementary and secondary school teachers; qualified-zone academy bonds that can be used for school renovations and repairs, except new construction; qualified school-construction bonds, which offer tax credits in place of interest payments; the ability to use 529 plans to pay for computer technology and equipment tax-free; and expand the American Opportunity Tax Credit for education by increasing the tax credit amount from $2,500 to $3,250.
I’m also working to hold higher education institutions accountable for the tax breaks they receive. Some colleges and universities are holding onto enormous endowment funds, while simultaneously raising tuition. Most contributions to these endowment funds are tax-deductible. Yet, very little of this money is used to reduce the cost of education at these schools. Colleges that benefit from tax-exempt status have a social compact to uphold: to provide the best education to the most students at the lowest cost. The public has a right to know how tax-free endowment income and tax-deductible donations are used. As a direct result of my oversight and more public scrutiny, dozens of schools revised their financial aid packages and committed to reviewing their endowment payout policies.
As Iowans head back to classes this fall, higher education should have a front row policy seat in Washington. In a struggling economy, Iowa families are worried more than ever about paying for tuition and textbooks. The lesson for Congress is obvious: Raising taxes and taking away education savings tax breaks make it harder for Iowa families to pay their bills and send their kids to college.