Legislation (as-yet-unnumbered) designed to expand education savings accounts (ESAs) and provide other education-related tax breaks was approved, 18-2, by the Senate Finance Committee on March 13.
Sponsored by Chair Charles Grassley (R-IA), the bill would apply to the ESAs established by Congress as part of the 1997 Balanced Budget Act (P.L. 105-43). Tax-free withdrawals can be made from the accounts to pay tuition for higher education, along with some room and board costs.
Sen. Grassley’s measure would immediately increase maximum annual ESA contributions from $500 to $2,000. The language contrasts with the President’s proposal to phase-in a limit of $5,000 by FY2006.
As introduced, Sen. Grassley’s bill did not contain another provision backed by the President to allow ESA withdrawals for elementary, junior high, and high school costs—in addition to college expenses. Commenting on the bill during the mark-up, Sen. Grassley voiced his support for that approach, saying it was excluded from the legislation in deference to Sen. Max Baucus (D-MT), the committee’s ranking member and the bill’s cosponsor. “This is a bipartisan bill with bipartisan support,” said Sen. Grassley.
Those opposed to using ESA savings for elementary and secondary education contend that the move effectively would create a voucher program because the withdrawals could be spent on private schools. Supporters of the plan state that it would make elementary and secondary education for affordable for more families.
During the mark-up, the committee approved, 12-8, an amendment by Sen. Robert Torricelli (D-NJ) to allow ESA withdrawals for elementary and secondary education. Sen. Baucus was among the Senators voting against the amendment, and in the committee’s final vote, he also voted against passing the bill out of committee.
The bill contains several other provisions, including one to allow college graduates to take the student loan interest tax deduction for the entire life of the loan, as opposed to the current 60-month limit. It also would make employer-paid tuition assistance plans tax-free and allow private colleges to participate in pre-paid tuition plans operated by state governments. The measure also would allow a tax deduction for public school teachers who purchase supplies for their classrooms.
During the mark-up, the committee defeated, 10-10, an amendment offered by Sen. John Kerry (D-MA), which would have authorized tax credits for school bond holders, in an effort to help finance construction of public elementary, junior high, and high schools. Sen. Grassley thanked several Senators for withholding amendments in the interest of moving the bill quickly out of committee. Sen. Olympia Snowe (R-ME) was among those reserving amendments until floor action. One of the amendments that Sen. Snowe may offer would provide an annual tax credit up to $1,500 for interest paid on student loans by single filers earning less than $50,000 annually and joint filers earning less than $100,000 annually. Sen. Snowe’s other amendment would allow a deduction for those who finance college tuition for another family member. Currently, tuition deductions apply only to payments on behalf of a taxpayer’s children.