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Push Is On To Revive Federal Tax Breaks

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WASHINGTON--Less than a year after the most sweeping revision of the federal tax code ever, efforts are under way to restore many tax breaks favored by the education community but repealed by the Congress.

More than 23 bills have been introduced that would roll back the effects of the 1986 tax reforms in a number of areas of considerable importance to the nation's public schools, colleges, and universities.

Education lobbyists are supporting bills that would restore the deduction for state sales taxes, allow parents and students to once again write off the interest on their college loans, and revive a three-year tax holiday for retiring teachers.

Other measures would ease the limits imposed last year on the deduction for charitable contributions, remove the limits imposed on private colleges and universities that issue tax-exempt bonds, and permanently extend a tax break for companies that subsidize their employees' educational expenses.

But despite the flurry of activity, education lobbyists disagree sharply over the prospects for winning approval for such measures this year.

"There is a traditional reluctance in Congress to revisit issues once they have been settled, especially when they are as politically and economically sensitive as tax reform,'' said Michael Edwards, the director of government relations for the National Education Association.

Last year's package of tax changes lowered marginal tax rates for many individuals, but only by raising corporate taxes and eliminating a range of deductions and loopholes.

Many educators warn that the changes, especially the loss of the sales-tax deduction, will make it harder for states and local governments to raise the taxes needed to finance school improvements. The higher-education community, meanwhile, worries that the bond limitations and a decline in charitable
contributions will force colleges and universities to raise tuition and cut back on research.

Recouping Losses

Before the ink on the tax law was dry, disgruntled interest groups, including many education organizations, were formulating plans to recoup their losses.

Education-related provisions that were eliminated last year but that have been advanced again this year include:

  • The sales-tax deduction: No less than six bills are aimed at reviving this write-off. HR 374, sponsored by Representative Stewart B. McKinney, Republican of Connecticut, would simply reverse last year's change. Other bills, such as S 819, sponsored by Senator Larry Pressler, Republican of South Dakota, would allow taxpayers to deduct either sales or income taxes, but not both.
  • Pensions: Four measures, three in the House, one in the Senate, would allow teachers and other public employees to once again recoup their pension contributions during the first three years after they retire. Under the 1986 law, these "pre-taxed'' earnings must be spread out over a retiree's expected lifetime.
  • Charitable deduction for non-itemizers: Two pending House bills would once again allow all taxpayers to write off their charitable contributions.

In addition, several Republican House members are seeking a new tax provision that would allow parents to set up investment funds for their childrens' college educations. As with the popular Individual Retirement Accounts, payments to the education funds would be tax deductible.

To date, two states--Michigan and Wyoming--have established such tuition-trust programs, and Tennessee would become the third if the governor, as expected, signs authorizing legislation.

The federal counterparts to these measures, however, must overcome several formidable obstacles, the chief of which is the Congress's need to reduce the huge federal deficit.

Although the 1986 reforms resulted in a one-time tax "windfall'' this year, the net effect in fiscal 1988 is expected to be a revenue loss of some $2 billion. At the same time, the House has directed its tax-writing committee to raise an additional $18 billion in revenue to cut the deficit. The Senate is expected to follow suit.

"The [tax] committees have made it quite clear that they will consider no changes unless there are revenue-enhancers to balance them,'' said Katherine Herbert, a lawyer with the National School Boards Association.

But other lobbyists are more optimistic, predicting that taxpayer outrage over the loss of much-cherished deductions will force the Congress to act in 1988, when the new tax law takes full effect.

Still other education advocates argue that the revenue losses that would result from many of their proposals would be minor compared to damage the new law has done to their institutions.

In a recent letter to members of the House Ways and Means Committee, for example, the American Council on Education estimated that restoring the deduction for the interest on student loans would cost only $150 million a year, "which is minimal when compared to the benefit and relief which will be furnished to middle-income students and families.''

A number of tax-reform critics are hoping to tie their pet provisions to expected legislation making technical corrections in last year's law. Congressional tax-writers, however, are expected to fight such efforts, which they regard as premature.

"A lot of dire results have been predicted from tax reform,'' one House Ways and Means Committee aide said, "but none has come to pass yet. There isn't any evidence to justify dismantling tax reform.''

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