Grassroots push leads to positive fed tax bill for higher education

By Jacquie Powers

Cornell officials, heartened last week by Congressional passage of a federal tax bill that in the end gave broad support to higher education, expressed gratitude to members of the campus community for their strong grassroots response during the tax bill debate.

The bill, passed by Congress July 31, gives college students and their families about $40 billion over five years in tuition-related tax breaks.

"This historic tax bill, which holds such significance for higher education, is truly the result of representative government ­ elected officials responding to the will of the people," said Henrik N. Dullea, Cornell vice president for university relations. "Cornellians here and across the country wrote to and called their elected officials in unprecedented numbers."

Key elements of the bill, which was signed by President Clinton on Aug. 5, are two tax credits for tuition that are phased out for those at higher income levels:

• "Hope Scholarships," worth up to $1,500 a year for the first two years of college: 100 percent of the first $1,000 that a student spends on tuition and fees and 50 percent of the second $1,000.

• "Lifelong Learning" credit, which can be used for the third or fourth year of undergraduate study or for graduate work, for 20 percent of the first $5,000 a student spends on tuition and fees.

The bill also leaves intact Section 117 benefits, the tax exemption on remitted tuition for graduate assistants and for children of faculty and staff (known at Cornell as Cornell Children's Tuition Scholarships, or CCTS).

The tuition credits and other tax breaks included in the compromise legislation were the direct result of heavy lobbying efforts by members of the higher education community nationwide ­ including scores of Cornellians, said Stephen Philip Johnson, Cornell's executive director of government affairs.

"It was a real grassroots effort," Johnson said. "People who had never mobilized before told me they wrote to their Congressional representatives on this issue. And that effort paid off."

Other important elements of the bill are:

• A deduction of up to $2,500 each year for five years in interest paid on student loans, phased out at higher income levels.

• Extension of Section 127 for undergraduates, which exempts from taxation employer-provided tuition assistance through the year 2000. The same tax exemption for graduate study was lost.

• Penalty-free IRA withdrawals for undergraduate, postsecondary vocational and graduate education expenses. And, taxpayers can contribute $500 a year into a new Education IRA, with tax-free earnings and no taxes due upon withdrawal for an approved purpose.

• Repeal of the $150 million cap on the amount of tax-exempt bond issuance by private institutions, applicable to new capital expenditures.

• Exclusion from a student's taxable income of the value of outstanding loans forgiven by a private college in exchange for community service.

• Exemption from tax for earnings on prepaid tuition programs and an extension of these benefits to private college programs.

The new bill also offers provisions favorable to Cornell University Medical College in New York City, including those that "carve out" from the managed care plans the direct graduate medical education (DGME) and indirect medical education (IME) payments. It also retains the current Graduate Medical Education (GME) Demonstration Project.

The bill does not, however, preserve the tax-exempt status of higher education's ­ and Cornell's ­ biggest pension provider, the Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF).

"We regret that our efforts on behalf of TIAA-CREF and on Section 127 for graduate course work did not succeed, but we have much to celebrate in this agreement," Dullea said. "This bill, in marked contrast to the original bill, will help make higher education more accessible for all Americans. Clearly, the president and Congress have reaffirmed the importance of higher education to this country."

TIAA-CREF has issued a report analyzing the possible impact of the new tax law on its retirement pension holders. The report can be located on the TIAA-CREF World Wide Web site at http://www.tiaa-cref.org/newmessage.html. Details of the phasing-in of the new tax on TIAA-CREF are still unclear.

"We got almost everything we wanted, almost everything members of the Cornell community worked hard to get," Johnson said. But, he added, the fight isn't completely over yet. "This is just the tax authorization bill. Now we have to get through the appropriations process, which provides money for student aid, research and extension funding in the budget due Oct. 1."

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