President's Budget Includes Education and Tax Policy Goals

The White House has proposed a $4.066 trillion federal budget for FY16 that reaffirms access to higher education and affordability remain top priorities. In addition, research agencies would see significant gains, with a $7.6 billion increase proposed for overall research and development spending. To achieve these goals, the president would do away with sequestration and increase tax revenue.

The proposed budget would allow for a maximum Pell Grant award of $5,915 for 2016-17. Obama calls for an increase of 5.3 percent for the National Science Foundation, 5.4 percent for the Department of Energy Office of Science, and a 3.3 percent increase for the National Institutes of Health. White House budget documents also include numerous social policy goals and proposals for federal tax changes, which congressional budget writers will consider as they develop FY16 budget and appropriations legislation.

The education committees will consider some of the higher education proposals as they work on reauthorization of the Higher Education Act. Tax proposals, which are included in the budget request as part of the "Green Book"—the Treasury Department document containing the administration's revenue proposals for FY16—will be analyzed as lawmakers debate and discuss overhauling the tax code. It will be an uphill battle, however, to find common ground between the Democratic White House and the Republican Congress in the coming months.

Highlights of the FY16 budget proposal include:

Education

• Pell Grant. This program would be fully funded; the current maximum would increase from $5,775 to $5,915 for 2016-17 and be linked to inflation beyond 2017. Without providing specifics, the administration also proposes, "strengthening academic progress requirements" in the Pell program.
• Two years of free community college. One new detail in the budget relates to the America's College Promise proposal. Students with an adjusted gross income of $200,000 and above would be ineligible. 
• Income-based repayment (IBR) for student loans. IBR would be streamlined, any savings would be redirected to the Pell Grant Program, and the administration would make modified "Pay as You Earn" terms the only income-driven repayment plan for borrowers who originate their first loan on or after July 1, 2016.
• Perkins Loans. This program would be overhauled by modifying the formula used to allocate funding to institutions. The Department of Education, rather than institutions, would service Perkins loans.
• Campus-based aid. Supplemental Educational Opportunity Grants and Federal Work Study would be level funded from FY15.
• FAFSA simplification. The administration would eliminate 30 questions bringing the total number of questions to 78. 
• 90/10 rule. Department of Defense Tuition Assistance and Department of Veterans Affairs GI Bill Benefits would be included in the calculation of the 90 percent cap on the share of for-profit colleges' revenue that comes from federal taxpayers. 
• Competitive programs. The budget proposes increased funding for the First in the World program and a new $200 million American Technical Training Fund.

Tax

• IRS Form 1098-T. Colleges and universities would be required to report on IRS Form 1098-T amounts paid rather than amounts billed for qualified tuition and related expenses.
• Higher education tax credits. The president proposes expanding and modifying the American Opportunity Tax Credit (AOTC) and repealing Lifetime Learning Credits. The expanded AOTC would be available for the first five years of postsecondary education and for five tax years. Eligibility would expand to include less than half-time undergraduate students. 
• Student loans. The proposed budget repeals the student loan interest deduction and provides exclusions for certain debt relief and scholarships.
• Charitable treatment of ticket purchases. The proposal would disallow the deduction for contributions that entitle donors to a right to purchase tickets to sporting events. Currently, donors may deduct 80 percent of the contribution.
• Charitable deduction. The administration again proposes a 28 percent cap on the charitable deduction. However, charitable giving carve outs are built into both a proposed "Buffett Rule" tax scheme and a proposed capital gains tax.
• Municipal bonds. The administration also again calls to limit to 28 percent the exclusion of tax-exempt interest for municipal bonds. 
• Private business use. For bonds issued after the date of enactment, the proposal would provide an exception to the private business limits on tax-exempt bonds for research arrangements. This exception would apply to basic research at tax-exempt bond-financed research facilities that meet certain requirements.