White House Budget Urges Tax Policy Changes
April 17, 2013
President Obama's FY14 budget request, delivered April 10, provides a general fiscal blueprint for the country, outlining the White House position on overall economic policy and ways to address deficit reduction. It also calls for changes in the tax code, requests spending for federal programs, and proposes a variety of policy changes and new domestic programs.
Many specific tax issues impacting colleges and universities are on the table. Notably, the Treasury Department document that contains the administration's revenue proposals for FY14, often referred to as the "Green Book," calls for modifying the way colleges and universities report information on IRS Form 1098-T. The book also includes a slew of new capital financing proposals.
NACUBO recently weighed in on each of these issues with the House Ways and Means Committee as a part of the committee's effort to review important issues in preparation for comprehensive tax reform. In response to the tax-reform discussions, NACUBO has prepared talking points that highlight several tax issues which impact students and institutions. NACUBO has been reaching out to policymakers and others to bring attention to our concerns. We encourage you to work with your campus president and federal government relations officers to consider discussing some or all of the issues with your members of Congress. NACUBO's talking points focus on charitable giving incentives, tax-exempt bond financing, higher education tax benefits, IRS Form 1098-T, and energy efficiency incentives.
IRS Form 1098-T
An administration proposal to change Form 1098-T reporting is of particular concern, because it would require institutions of higher learning to report on IRS Form 1098-T amounts paid rather than amounts billed for qualified tuition and related expenses. The proposal would also mandate that any entity issuing a scholarship or grant in excess of $500 that is not processed or administered by an institution report the scholarship or grant on Form 1098-T.
Current law requires colleges and universities to report, on the 1098-T, a student's enrollment status, qualified educational expenses, and grant aid in order to assist taxpayers and the IRS in determining a tax filer's eligibility for education tax credits. However, institutions presently have the choice of reporting payments received for qualified tuition and related expenses (Box 1 on the form) or amounts billed for qualified tuition and related expenses (Box 2), in a given tax year. The vast majority of institutions choose to report the amounts billed (Box 2), because college and university accounting systems generally do not apply payments from various sources (such as student payments, scholarships and loans) to specific charges on a student's account (such as tuition, room and board, and other fees), nor do they distinguish qualified versus unqualified expenses. The proposed change is estimated to enhance IRS compliance enforcement and to raise more than $1 billion over 10 years.
Because Congress is in the process of considering comprehensive tax reform, NACUBO has prepared general talking pointsraising concerns with IRS Form 1098-T.
In the same document, NACUBO weighs in on the host of tax incentives that make college more accessible to students across many income levels and serve to alleviate pressure on the strained budgets of students, families, and institutions. NACUBO, along with nine other associations, also signed on to a joint statement calling for support, as well as simplification, of these tax benefits.
Limiting Deductions and Exclusions
Once again, President Obama is calling on Congress to limit to 28 percent (1) the charitable deduction for those making $250,000 per year or more; and (2) the exclusion of tax-exempt interest for municipal bonds. In support of this proposal, the administration argues in the "Green Book" that, "Increasing the income tax liability of higher-income taxpayers would reduce the deficit, make the income tax system more progressive, and distribute the cost of government more fairly among taxpayers of various income levels."
NACUBO, together with a number of higher education associations, has weighed in on both of these issues with lawmakers. On the charitable deduction, NACUBO submitted this statement, and signed on to a statement submitted by ACE.
NACUBO also led a joint effort to respond to proposals to alter tax-exempt bond financing. Together with 11 associations representing thousands of U.S. colleges, universities, and hospitals, as well as the finance authorities dedicated to providing capital financing for not-for-profit healthcare and higher education institutions, NACUBO submitted this statement to the House Ways and Means Committee as a part of the tax-reform working group process. The document states, "Together, we urge Congress to protect tax-exempt bond financing, including qualified 501(c)(3) private-activity bonds, which contribute to the financial health of hospitals, colleges, universities and other charitable organizations."
New Capital Financing Proposals
A number of budget proposals relate to tax-exempt bonds and capital financing, most notably:
- A new "America Fast Forward" bonds program. Similar to the Build America Bonds (BABs) program, this proposal would make direct subsidy payments to state and local government issuers in an amount equal to 28 percent of the coupon interest on bonds. Unlike the BABs program, the administration would include eligibility for qualified Private Activity Bonds.
- An increased subsidy rate for school construction. The "America Fast Forward Bonds for School Construction" program would allow for a temporary 50 percent federal subsidy rate. Eligible uses would include (1) original financing for governmental capital projects for public schools and state universities; and (2) new money financing for section 501(c)(3) nonprofit educational entities, such as nonprofit schools and nonprofit universities that could use qualified section 501(c)(3) bonds. For temporary stimulus purposes, for such bonds issued in 2014 and 2015, the Treasury Department would make direct payments (through refundable tax credits) to state and local governmental issuers in an amount equal to 50 percent of the coupon interest on the bonds.
- An exception for certain bonds. The budget calls for an exception to the private business limits on tax-exempt bonds for arrangements relating to basic research at tax-exempt bond-financed research facilities which meet certain requirements.
Recognizing that alternative capital financing proposals would be considered as a part of the comprehensive tax reform process, the joint association statement to the working groups on tax-exempt bonds expressed some reservations, stating:
A variety of proposals have been made to restrict or alter tax-exempt financing mechanisms. One example is direct pay bonds, such as Build America Bonds (BABs). While these bonds were not available to nonprofits, many public colleges, universities and hospitals issued BABs when they were available. While we would need to review the detail of any new proposals, we generally support direct pay programs if they are designed with subsidies adequate to result in a financial instrument whose total costs are comparable with a tax-exempt bond. Should BABs be reinstated, we would support expanding eligibility to private 501(c)(3) institutions. However, if continuity of federal subsidy payments is unreliable, as demonstrated under the recent sequestration order, we are skeptical that institutions will see direct pay bonds as a dependable budget and planning tool to lower borrowing costs. We encourage Congress to consider direct pay bonds and other proposals as complements, and not alternatives, to tax-exempt bonds.
Director, Congressional Relations