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Hillary Clinton Should Acknowledge that Tuition Tax Breaks Don鈥檛 Work

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This post ran first in The Hechinger Report.

As Hillary Clinton鈥檚 presidential campaign gets underway, let鈥檚 hope she does not make the mistake that other Democratic contenders have made in the past and propose to increase spending on student aid that is delivered through the tax code. Tuition tax credit programs, like President Obama鈥檚 (AOTC), just don鈥檛 work. As shows, there isn鈥檛 any evidence to suggest that the availability of these tax breaks has changed students鈥 college-going behavior.

In 2014, the federal government on two tuition tax break programs. The largest is the AOTC, which Congress put in place temporarily as part of the federal stimulus plan in 2009 and, more recently, extended through 2017. Championed by the Obama administration, the AOTC is a $2,500 partially refundable income tax credit that individuals earning up to $90,000 a year, and families with annual earnings of up to $180,000, can claim for up to four years of college.

The government also offers the , a $2,000 nonrefundable tax break that is available to students who take at least one postsecondary education course in a given year.

Unfortunately, providing tens of billions of dollars in financial aid through the tax code each year is ineffective and wasteful for the following reasons:

  • The tuition tax break programs are not well targeted, with a substantial share of the benefits going to affluent families who would send their children to college without the help. , about a quarter of the benefits from higher-education tax credits in 2012 went to families with incomes of $100,000 or more. In comparison, about have family incomes of $30,000 or less.
  • The tax breaks arrive at least 9-10 months after students and their families pay their tuition bills. The timing of the benefits is not only impractical but also obscures their purpose. A by of Cornell University found that nearly 60 percent of tuition tax credit recipients didn鈥檛 realize they had received help from the government to pay for college.
  • These programs are complicated and confusing. Because of the complexity of navigating the tax code, many families do not appear to know whether they qualify for these benefits. The in 2012 that 1.5 million filers who were eligible for tuition tax breaks in 2009 failed to claim them, leaving a total of $726 million on the table.

If these benefits are so ineffective, why has every Democratic presidential nominee, , pushed his own tuition tax cut plan on the campaign trail? What accounts for the Democrats鈥 love affair with these tax breaks?

There are two reasons for the Democrats鈥 affection for these programs. The first is that procedurally it is far easier to provide financial assistance to students and their families through the tax code than through the annual budget process. That鈥檚 because federal lawmakers must decide each year how much they want to spend on the Pell Grant program. In doing so, they must balance competing priorities for a limited amount of available funding. In contrast, there are no such limits on how much can be spent on the tuition tax credit programs. The program鈥檚 costs depend solely on the number of people who claim them.

The second reason is not about policy. It鈥檚 about politics, pure and simple. For politicians, proposing tuition tax credits on the stump is a no-brainer, considering that the tax breaks poll phenomenally well with families worried about ever-rising college prices.

A lays out the political calculus very clearly. The memo urged progressive groups to get behind President Obama鈥檚 proposal to create the AOTC. Citing a poll it commissioned showing overwhelming support among parents (and other demographic groups) for tuition tax cuts, the organization said that championing the AOTC could pay huge dividends for Democrats for years to come鈥攂y sending 鈥渁n important signal that progressives understand middle-class priorities and the value Americans place on getting their kids through college.鈥

鈥淭he progressive hold on the middle class is tenuous, and securing their long-term loyalty and attention requires that progressives understand and respond to middle-class concerns and needs,鈥 the memo states. 鈥溾 generous college tuition tax cut鈥攂y speaking effectively to both middle-class aspirations and anxieties鈥攃an help cement the bond between progressives and the middle class.鈥

What鈥檚 ironic is that Democrats once opposed these types of tax breaks. For the first three decades after the introduction of the Higher Education Act in 1965, the federal law that created federal financial aid, Democratic champions of the government鈥檚 financial aid programs several efforts by lawmakers and the Reagan administration to start providing student aid through the tax code. In fighting these proposals, they argued that the federal government should focus its resources on helping those who would not be able to attend college without the help.

In the 1960s and the early 1970s, a Democratic-led Congress rejected proposals to create tuition tax credits. Instead, to open the doors of college to low-income students, they created Pell Grants. For less needy students, they launched a government-backed student loan system, aimed primarily at helping middle-income students afford costlier colleges.

But critics of the government鈥檚 student aid programs were not satisfied. They argued that the system was unfair to middle-income families, who did not qualify for grant aid.

The fight came to a head in the late 1970s when a bipartisan group of lawmakers called for eliminating federal student aid programs and replacing them with tuition tax breaks. President Jimmy Carter , arguing that a system of grants for low-income students and loans for middle-income students was more equitable than one that would leave those who most needed the government鈥檚 help in the lurch because their families generally didn鈥檛 earn enough to pay taxes. Congress was divided. Only in the waning hours of the 1978 Congressional session did the proponents of the existing system quash the tax plans.

Instead of expanding the tuition tax breaks, Congress should end them and use the savings to significantly increase spending on need-based aid for those who wouldn鈥檛 be able to afford college without it.

On the stump, Hillary Clinton could show real leadership by acknowledging that these tax breaks, which her husband championed, were a mistake, and lead the effort to eliminate them in favor of more funding for federal financial aid. But first, she鈥檒l need the courage to tell her pollsters to take a hike.”

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Stephen Burd
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Stephen Burd

Senior Writer & Editor, Higher Education

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Hillary Clinton Should Acknowledge that Tuition Tax Breaks Don鈥檛 Work