Revenues
Eliminate Certain Tax Preferences for Education Expenses
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
| Billions of dollars | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2015-2019 | 2015-2024 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Change in Revenues | 5 | 24 | 25 | 22 | 11 | 12 | 12 | 13 | 13 | 14 | 87 | 150 |
Source: Staff of the Joint Committee on Taxation.
Note: This option would take effect in January 2015. Estimates are relative to CBO’s April 2014 baseline projections. The estimates include the effects on outlays resulting from changes in refundable tax credits.
Federal support for higher education takes many forms, including grants, subsidized loans, and tax preferences. The major tax preferences in effect in 2014 (all years referred to in this option are calendar years) or scheduled to be reinstated under current law are the following:
- The American Opportunity Tax Credit (AOTC), which can total as much as $2,500 (100 percent of the first $2,000 in qualifying education expenses and then 25 percent of the next $2,000) in 2014;
- The Lifetime Learning tax credit, which provides up to $2,000 for qualifying tuition and fees;
- The Hope tax credit, which is not currently available but is scheduled to be reinstated in 2018 when the AOTC expires and was equal to 100 percent of the first $1,200 of qualifying tuition and fees and 50 percent of the next $1,200 for a maximum credit of $1,800 per year in 2008 (the last year it was available); and
- Tax deductions of up to $2,500 per year for interest payments on student loans.
This option would eliminate the AOTC and the Lifetime Learning tax credit and cancel the reinstatement of the Hope tax credit. The option would also gradually eliminate the deductibility of interest expenses for student loans by phasing them out in annual increments of $250 over a 10-year period.