As Congress works on two sweeping infrastructure packages, NACUBO’s federal policy staff is focused on the issues at stake for colleges, universities, and students. Neil Gavigan, policy and advocacy manager; Megan Schneider, senior director of government affairs; and Liz Clark, vice president for policy and research, share insights with Mary Bachinger, director of tax policy. They discuss the legislative progression of the proposals, factors influencing lawmakers, and what might be in store for higher education in the final legislation.
Mary: Neil, as NACUBO’s point person for collaborations with the charitable giving community, can you highlight the efforts underway to build on charitable giving flexibilities that were created as a relief measure during the pandemic?
Neil: The CARES Act, the coronavirus relief legislation that passed in March 2020, included a provision to create an above-the-line $300 charitable deduction for 2020 which made it possible for non-itemizers to receive a deduction for their charitable contributions. This was, of course, warmly welcomed by charitable organizations seeking support in the early days of the coronavirus pandemic.
The charitable giving community was again encouraged when Congress extended this deduction through tax year 2021 and increased the cap for joint filers to $600.
Nonprofit community efforts over the past six months, led by the Charitable Giving Coalition, have coalesced around advocating for the Universal Giving Pandemic Response and Recovery Act. This legislation would build on the foundation created by the CARES Act. Most notably, it would raise the deduction cap to roughly $4,000 for individual and $8,000 for joint filers, effectively allowing non-itemizers a tax benefit comparable to the charitable deduction that most who itemize their tax returns can receive.
The legislation would also extend the deduction through 2022 and eliminate the exclusion of gifts to donor advised funds.
Mary: Do you see Congress taking any further action that could stimulate giving in the coming legislation or otherwise?
Neil: It’s hard to say. There have been rifts between progressives and moderates within the Democratic party tied up with various policies that could affect giving. Increased tax rates for high-income earners and long-term capital gains both would provide a natural incentive to giving as those individuals seek to minimize their taxable income, and those proposals are relatively palatable for many Democrats who might disagree on other measures.
Mary: Megan, the reconciliation infrastructure bill, separate from the bipartisan infrastructure bill also working its way through Congress, has a number of multifaceted provisions that affect higher education in many ways. Can you highlight a few of the tax provisions that NACUBO along with other associations have long been pushing for that are included in current draft of the reconciliation infrastructure package bill?
Megan: There are several higher education tax provisions that we’ve been advocating for—some for several years now—that are included in the current draft of the package.
Notably, a number of important tax-exempt bond items, including a return of advance refunding for tax-exempt bonds and the reinstatement of the Build America direct pay bond program, are in the current draft. A provision that will increase access to capital for small borrowers by increasing bank qualified borrower limits is also included.
The bill also would create a new business credit for certain taxpayer contributions to public institutions in connection with a qualifying research infrastructure program.
On the student-facing side, the package proposes eliminating the taxability of Pell Grants and would solve a tax code glitch that prevents many Pell Grant recipients from receiving the full benefits of the American Opportunity Tax Credit. It also would repeal an existing rule that prevents students convicted of a state or felony drug offense from claiming the American Opportunity Tax Credit.
Finally, the bill would create adjustments to the college and university net investment income excise tax that would alter an institution’s tax liability based on the amount of financial aid it provides to its undergraduate students.
Mary: What were some of the motivating factors of the Ways and Means Committee, which was primarily responsible for crafting the tax portions of this draft of the package, to include these provisions? What can you attribute to their support for these provisions?
Megan: I would have to say that the consistent advocacy of NACUBO’s policy team, and that of our counterparts at other higher education associations, on many of the items mentioned above has been key in motivating committee members to ensure that all the tax provisions we care about were included in this draft of the package. As I mentioned, we’ve been working with members of Congress for years on some of these items, advocating for them and making sure no one forgets how important they are to institutions and students.
Many schools also have been actively reaching out to their representatives in Congress to communicate their tax priorities and that certainly has an impact. Members of Congress want their constituents to believe they’re acting in their best interests.
Finally, for many of the committee members, I think this package presents an important opportunity to correct existing provisions they may view as bad tax policy and is also a chance to advance ideas that are in line with their own beliefs and values.
Mary: How confident are you that all or most of these provisions will survive the final version of the bill approved by Congress and why?
Megan: At this point, it’s difficult to predict what will end up in the final package. Even among Democratic lawmakers, who are attempting to advance the reconciliation infrastructure package, there is a lot of debate about how big the bill should be, what items must be included, what items can or should be tackled separately, and a host of other differences that all will impact what is included in the final package.
I think we can safely say that the final bill will almost certainly be smaller than the current draft. At its current size, it likely will never pass in the Senate due to cost concerns from centrist Democrats. However, many of the tax items we care most about have a lot of support in both the House and Senate so I think, at least on the tax side, we ultimately may see many of the items we care most about included.
Mary: Liz, taking a step back to look at the bigger procedural picture, can you shed light on why the overall process seems so complicated?
Liz: It really is all about the margins—the number of votes by which Democrats hold the majority in both the House and Senate. Tight margins have given small factions on Capitol Hill immense power.
Mary: But doesn’t President Joe Biden have Democratic majorities to work with?
Liz: Indeed, he does. However, in the House, Democrats only have an eight-vote majority. If a small group of Democrats decide they don’t want to support the speaker’s priorities, they can hold up floor action until they are satisfied.
In the Senate, the votes are split evenly, giving Vice President Kamala Harris the tie-breaking vote. If even one Democratic senator disagrees with the majority leader’s plan, it’s back to the drawing board.
Mary: Wouldn’t this mean that lawmakers should seek bipartisan compromises? Why are lawmakers in Washington intent on one-party deals?
Liz: The simple reason is “because they can.” But the full answer is much more complex. First, Democrats are seeking to achieve goals that are aligned with their party principles. Striking a bipartisan compromise would necessarily mean that they’d need to pare down their objectives—and risk making lawmakers look weak to party loyalists.
However, in the House, when necessary, Speaker Nancy Pelosi seeks bipartisan votes. But when it comes to the sweeping plans President Biden has set, she will need to rely on a party-line vote as no Republicans are expected to support the plans.
Further, all House members are up for reelection in 2022. Republicans don’t want to look weak to their constituents by supporting a compromise, and neither do Democrats. When these congressional incumbents hit the campaign trail, their voting record needs to serve as an attestation to their party supporters, particularly primary election voters.
In the Senate, most legislation requires a 60-vote majority to pass, essentially to avoid the prospect of a filibuster. However, there is a very complex and unique process called budget reconciliation, which is what Democrats are using for their infrastructure package. It gives the majority very limited opportunities to move legislation with 50 votes, plus the vote of Vice President Harris to carry the legislation forward.
Budget reconciliation gives Democrats the ability to push their priorities, without compromise with Republicans, in legislation that only requires a simple majority.
The challenge Senate leaders face is that budget reconciliation gives any one senator the ability to threaten to vote against legislation if their demands are not met. Currently, most are closely watching Sens. Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ), as they appear to be willing to object to party leaders to appease their more-moderate voting bases at home.