At The Quick and the Ed, Stephen Burd makes a strong case against the American Opportunity Tax Credit, which the president now seeks to permanently extend:
President Obama proposed today to permanently extend the American Opportunity Tax Credit, a partially refundable $2,500 tax credit that families with incomes up to $180,000 can claim to help offset the costs of higher education. But as I wrote in the “Student Aid Perspectives” column that ran this morning on the National Association of Student Financial Aid Administrator’s website, providing financial aid through the tax code is an ineffective and wasteful way to help students and families pay for college. …
As many student-aid experts have pointed out, tuition tax breaks are not well-targeted, with a substantial share of the benefits going to affluent families who can afford to send their children to college without the aid. According to the College Board, 26 percent of the savings derived from the higher education tax credits in 2009 went to taxpayers with incomes over $100,000. In comparison, the Department of Education reports that more than 90 percent of dependent students who receive Pell Grants come from families making less than $50,000.
The survival of the AOTC looks like yet another example of how the power of HENRYs (i.e., the not-quite rich) warps public policy.