At the end of 2012, current tax rates for individuals are set to expire (the so-called Bush tax cuts). So, too, are a host of tax provisions impacting higher education, including Section 127 of the Internal Revenue Code (which allows for tax-free treatment of employer-provided educational assistance benefits), the American Opportunity Tax Credit, the Student Loan Interest Deduction, and Coverdell Education Savings Accounts. Congress is also grappling with how to address a number of tax provisions that expired on December 31, 2011, including the IRA charitable rollover, the research and development tax credit, and the above-the-line deduction for qualified tuition and related expenses.
Little action on these tax provisions is expected before the November election. At that time, Congress will also likely be addressing the FY13 federal budget and automatic spending cuts mandated under the sequester adopted last year, as well as a vote on lifting the federal debt ceiling.
On Thursday, April 26, the House Ways and Means Subcommittee on Select Revenue Measures held a hearing focused on the tax provisions that either expired in 2011 or will expire in 2012, also known as "tax extenders." The only witnesses to testify were Members of Congress wishing to speak on behalf of legislation they have introduced or cosponsored related to the extension, modification, or termination of tax extenders.
Rep. Wally Herger (R-CA), sponsor of legislation (H.R. 2502) to expand and make permanent the IRA charitable rollover, said that "maintaining incentives for charitable giving is especially important in tough economic times." Several other members also spoke in support of the research and development tax credit.
On April 26, the need to address tax extenders was discussed during a Senate Finance Committee on "Tax Filing Season: Improving the Taxpayer Experience." While not the focus of the hearing, the need to address tax extenders was raised several times during the hearing.
The previous day, the Senate Finance Committee held a hearing on "Tax Reform: What It Means for State and Local Tax and Fiscal Policy." Chairman Max Baucus used the opportunity to promote reinstatement of the Build America Bonds program. In his opening statement, Baucus said, "Tax-exempt bonds subsidize interest paid on such bonds by exempting the interest from tax. Currently, the value of this subsidy varies based on taxpayers' marginal income tax rates. For every dollar we spend on infrastructure through a tax exempt bond, twenty cents goes to tax breaks for higher-income taxpayers. A uniform subsidy would mean each taxpayer receives the same subsidy regardless of tax bracket. The Build America Bonds program achieved success using this approach."
NACUBO joined a number of state and local government associations, plus other organizations representing participants involved in the municipal bond market, in sending a letter to Chairman Baucus and Senator Hatch to commend them for holding a hearing on the impact of tax reform proposals on state and local governments. "Our citizens and communities benefit in many ways from the issuance of tax-exempt bonds. They are used to build and maintain elementary and secondary schools, as well as colleges and universities, which help develop an educated workforce," the letter states. It goes on to say, "...tax-exempt financing is a well-established market providing a cost-effective mechanism for financing infrastructure and meeting needs of our citizens. Any changes that would replace, compromise, dampen or eliminate tax-exempt financing immediately or retroactively, particularly those offered as deficit reduction alternatives, should be carefully and cautiously analyzed by the committee."