Finds loopholes in the education tax credits

WHEN President Clinton dealt himself a new hand in the middle of the tax-cut game, he claimed that he did so partly because he was unhappy with the House and Senate tax breaks for college. “They do an inadequate job,” he said, “of opening the doors to college.” Unfortunately, this issue was framed as a debate over which plan can lose the most money, rather than which is most effective.

For the first two years of college, the President proposed a 100 per cent tax credit for the first $1,000 of tuition, and 50 per cent of the next $1,000. The Senate offered a 75 per cent credit for the first $2,000 spent at a community college, or 50 per cent of $3,000. All these plans would cut $1,500 off a taxpayer’s bill, so the differences were trivial. In the end, Congress went along with a modest variation of the President’s plan: A 100 per cent tax credit for the first $1,000 of tuition, 50 per cent for the next $1,000, and 20 per cent for the balance up to $5,000, and 20% for the next $5000.

About the Author

Alan Reynolds

Alan Reynolds, National Review’s economics editor from 1972 to 1976, is a senior fellow at the Cato Institute and the author of Income and Wealth.

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WHEN President Clinton dealt himself a new hand in the middle of the tax-cut game, he claimed that he did so partly because he was unhappy with the House and Senate tax breaks for college. “They do an inadequate job,” he said, “of opening the doors to college.” Unfortunately, this issue was framed as a debate over which plan can lose the most money, rather than which is most effective.

For the first two years of college, the President proposed a 100 per cent tax credit for the first $1,000 of tuition, and 50 per cent of the next $1,000. The Senate offered a 75 per cent credit for the first $2,000 spent at a community college, or 50 per cent of $3,000. All these plans would cut $1,500 off a taxpayer’s bill, so the differences were trivial. In the end, Congress went along with a modest variation of the President’s plan: A 100 per cent tax credit for the first $1,000 of tuition, 50 per cent for the next $1,000, and 20 per cent for the balance up to $5,000, and 20% for the next $5000.