Final Obama Budget Request Sent to Capitol Hill

When President Obama released his budget request for FY17 on February 9, Republicans made clear they felt it was more of a political statement than a budget framework. Before the details were even released, the Republican chairmen of the House and Senate budget committees indicated they would not allow the White House budget director to come before their committees to present the annual budget request.

In an election year where control of both the White House and the Senate are at stake, it likely will be a bruising road to agreement on a final budget. Some are already predicting that little progress will be made before the lame duck session following Election Day.

Obama's plan doesn't try to significantly increase spending over FY16, but in order to make room for a number of priority initiatives, he has proposed a number of tax changes to offset the costs. Under a two-year budget agreement enacted last fall, lawmakers were given a one-year spending gain for FY16, but the deal left them with an essentially flat budget for FY17. 

Many FY17 Obama initiatives target college affordability and access, and a mixed bag of proposed tax changes would have implications for students and families, donors, and colleges and universities. While the administration has been supportive of university-based research in the past and has outlined ambitious goals, basic research, overall, did not get much attention in the budget request.

Higher education, research, and tax provisions and features of the FY17 budget proposal include:

EDUCATION

• Pell Grant awards. The FY17 White House proposal would lift the Pell maximum award of $5,935 (+ $120) in academic year 2017-18. 
• Pell bonus. Students who take at least 15 credits per semester in an award year, the proposal calls for a bonus of $300, bringing their maximum award to $6,235.
• Year-round Pell Grant. A restoration of year-round Pell eligibility, under the White House plan, would allow for use for a third semester during an academic year only if a student has already completed a full-time load of 24 credits.
• Pell Grant indexing. The budget calls for the Pell Grant to be indexed annually to inflation. The current link to inflation expires in FY17.
• Pell Grants for incarcerated students. The budget request also lifts the current restriction on providing Pell Grants to incarcerated individuals eligible for release.
• America's College Promise. President Obama is continuing his call to make a community college education free. He previewed the proposal for America's College Promise before the official budget release. He calls for $1.257 billion in mandatory funding, which would make two years of community college free for eligible students. The program would also cover two years of tuition and fees at four-year historically black colleges and universities and other minority-serving institutions.
• Other federal grant aid. The FY17 request provides only level-funding for the Federal TRIO programs at $900 million, Federal Work-Study at $990 million, Supplemental Educational Opportunity Grants (SEOG) at $733.1 million, GEAR UP at $323 million, and Graduate Assistance in Areas of National Need (GAANN) at $29.3 million.
• Campus-based aid programs. Obama would overhaul campus-based aid program formulas for SEOG, Work-Study, and Perkins. Allocations would take into consideration enrollment and graduation of Pell students, as well as successful employment and repayment outcomes.
• Student loan repayment. Regarding student loans, the White House proposes to consolidate repayment plans into a single plan, Pay As You Earn (PAYE), and consolidate TEACH grants and the teacher loan forgiveness program.
• FAFSA simplification. The administration is also calling on lawmakers to simplify the FAFSA by removing questions related to savings, investments, net worth, untaxed income, and exclusions as well as make adjustments to Expected Family Contribution.
• The 90/10 rule. The budget also requests changing the 90/10 rule to 85/15—that is, having 15 percent of total revenue come from sources other than federal student aid—and  to include the Department of Veterans Affairs and Department of Defense education benefits within the 85 percent.

RESEARCH

• Agriculture. The proposal doubles the budget for the Department of Agriculture's National Institute of Food and Agriculture (NIFA) and Agriculture and Food Research Initiative (AFRI) to $700 million.
• Defense. The budget proposes $2.1 billion for Department of Defense basic research, a $207 million reduction from FY16 enacted levels, and would fund Science and Technology programs at $12.5 billion, a reduction of $749.6 million.
• Energy. The Department of Energy Office of Science would see an increase of 4.2 percent. The budget also proposes a new $100 million competitive research fund for universities.
• National Institutes of Health (NIH). NIH would see an $825 million increase over FY16 enacted levels. However, some of this increase is the budget carve-out for the vice president's "cancer moonshot" initiative.
• National Science Foundation (NSF). NSF would see a $500.5 million increase over FY16, an increase of only 1.3 percent.

TAX

Tax proposals are included in the budget request as part of the "Green Book"—the Treasury Department document containing the administration's revenue proposals for FY17. Lawmakers likely will analyze the proposals as they discuss overhauling the tax code.

Student and Family Education Tax Provisions

• New community college credit. The president is proposing a new "Community College Partnership Tax Credit," a $2.5 billion tax credit to incentivize companies to train and hire new community college graduates. The proposal would create an incentive for businesses to hire graduates from community and technical colleges. It would be a component of the general business credit and allocated annually to states on a per capita basis. The Green Book states, "A designated state agency would competitively award credit authority to qualifying community and technical college consortia, and certify employer participation and eligibility to claim the credit.  The award criteria would be designed to encourage partnerships focused on education and training pathways to get low-income and disadvantaged students the skills for better paying jobs." 
• Education credit reforms. In an effort to simplify and expand education tax credits, the president proposes modifying the American Opportunity Tax Credit (AOTC). The Lifetime Learning Credits would be repealed and the AOTC would be available for the first five years of postsecondary education and for five tax years, instead of the current four. Eligibility would expand to include less-than-half-time undergraduate students. The administration would also increase the refundable portion and index that amount to inflation. Additionally, Pell Grants would be excluded from gross income.
• Student loans. The proposed budget repeals the student loan interest deduction. Certain debt relief and scholarships would be excluded from gross income.

Charitable and Tax-Exempt Provisions

• Charitable treatment of ticket purchases. The White House once again proposes to disallow the charitable deduction for contributions that entitle donors the right to purchase tickets to sporting events at colleges and universities. 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 the proposed "Buffett Rule" 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.
• "America Fast Forward" bonds. Similar to the Build America Bonds (BABs) program, this proposal would make direct subsidy payments to state and local government issuers in a subsidy 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.

Information Reporting

• Expanded TIN matching program. The proposal would expand the authority to disclose taxpayer information under the TIN matching program.
• Accelerated information reporting. The administration is requesting a change to require information returns to be filed with the IRS by January 31, with an exception that Form 1099-B would be required to be filed with the IRS by February 15.  The due dates for the payee statements would remain the same. 
• Scholarship reporting. The administration is also calling for any entity that provides a scholarship of $500 or more (not processed or administered by an institution of higher education) to report the scholarship on Form 1098-T.