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Senate Finance Chair Unveils Latest Proposal for Tuition Tax Relief

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The chairman of the Senate Finance Committee weighed in on the debate over higher education tax breaks last week, releasing an overall tax plan including incentives aimed at allowing more students to continue their studies beyond high school.

Totaling some $32.2 billion in education-related tax relief over the next five years, the plan crafted by Sen. William V. Roth Jr., R-Del., was in some ways more generous than a House counterpart offered earlier this month. But it fell short of an agreement lawmakers and the Clinton administration negotiated in May.

The administration called for $35 billion in tuition tax credits and deductions. But Mr. Roth's plan included other education-related tax provisions, as did the $31 billion House package, which will likely reach the floor this week.

The House Ways and Means Committee's bill would offer annual tax credits worth 50 percent of a student's educational expenses, with a maximum credit of $1,500. ("Clinton, GOP at Odds Over Tax Cuts for Higher Education," June 18, 1997.) But the Clinton administration complained this would be unfair to students at postsecondary institutions with lower tuitions, such as community colleges. The president proposed tax credits equaling 100 percent of school expenses up to $1,500.

Mr. Roth's package addressed the issue in part by treating community college students differently. Community college students could receive credits valued at 75 percent of expenses, again to a maximum credit of $1,500. Those attending other postsecondary institutions would still receive the 50 percent credit, as proposed in the House.

Both the House and Senate plans would allow parents to make tax-free contributions of up to $2,000 annually to savings accounts set up for their children's college educations. The bills also would provide a federal tax deduction for up to $2,500 of the interest on their student loans.

Deductions for Teachers

Elementary and secondary school teachers also would be able to deduct the cost of education technology courses from their taxes, under Mr. Roth's plan.

Missing from the overall tax plan in the Senate was a provision to strip the Teachers Insurance and Annuity Association-College Retirement Equities Fund of its special tax-exempt status. The pension company serves college employees, private school teachers, and employees of other education-related nonprofits, including Editorial Projects in Education Inc., which publishes Education Week.

A House proposal to create a new tax on TIAA-CREF prompted the pension company to issue an appeal on its World Wide Web page, urging participants to lobby against the provision. The American Association of University Professors also passed a resolution opposing the plan at its annual meeting last week.

The Senate committee's omission of the TIAA-CREF tax is seen as a sign the provision is unlikely to make it into a final tax-credit bill, which the House and Senate will negotiate in coming months.

Although the provision was not for a direct tax on the benefits of the giant pension fund's participants, critics asserted that any new tax burden on TIAA-CREF operations would hurt its beneficiaries.

"If they raise taxes on TIAA-CREF, since it's a nonprofit, that, one way or another, would lead to a decline in faculty benefits," said Ernst Benjamin, the associate general secretary for the AAUP.

Claire Sheahan, a spokeswoman for the New York City-based TIAA-CREF, said last week it would be premature to accurately estimate how much that decline could be.

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