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Senate Approves Education Savings Accounts Bill

The Senate on March 2 approved, 61-37, a bill (S. 1134) designed to expand education savings accounts (ESAs). Sen. Paul Coverdell (R-GA), sponsor of the bill, said it represents “substance in education reform,” adding: “It has been somewhat of a long journey, and I am glad we have finally arrived at final passage.”

Legislation similar to S. 1134 has been vetoed twice by the President, once as a stand-alone bill (H.R. 2646) in 1998 and again as part of last year’s tax package (H.R. 2488). The administration has indicated that the President intends to veto S. 1134 if it is approved by both chambers.

The bill would expand education savings accounts that were established by Congress as part of the 1997 Balanced Budget Act (P.L. 105-34). The measure would expand the accounts from the current $500 maximum to $2,000. In addition to higher education costs, the measure would allow withdrawals to help pay for elementary and secondary education. Earnings on the accounts would remain tax-free, as would withdrawals used to help pay costs associated with education.

The bill also would broaden a tax exemption provided to employers who help pay undergraduate tuition for their employees. Under S. 1134, the exemption would be expanded to include employers who assist employees with graduate-level courses. Additionally, contributions made by parents to state-sponsored prepaid college tuition plans would be tax-free. Currently, those contributions are tax-deferred.

Debate originated on February 23, but Senate Majority Leader Trent Lott (R-MS) pulled the bill after its first day of consideration. He filed a motion to invoke cloture and limit debate, citing concern that Democrats would offer a series of unrelated amendments (see The Source, 2/25/00, p. 3). However, before the cloture vote could occur on February 29, Senators negotiated an agreement to continue consideration of S. 1134, allowing debate on several amendments related to education policy only.

Lawmakers participating in the debate took the opportunity to highlight their views on education policy—which is considered an important issue in this fall’s elections. Supporters asserted that the bill would help middle-class families save money for education. Sen. Coverdell said the bill “empowers parents and students and employers,” adding: “The data I have seen over and over suggested that over 70 percent of all these savings…would go to families earning $75,000 or less.”

Opponents claimed the bill would benefit higher-income families disproportionately. Sen. Richard Durbin (D-IL) cited Treasury Department estimates: “The wealthiest 20 percent—the upper one-fifth of families in America—will receive nearly 70 percent of the benefits.” He added, “We should direct more help to working families struggling to put their kids through college.”

The Senate rejected several amendments offered by Democratic Senators that would have shifted federal spending for the ESA program—an estimated $1.2 billion—to different programs. Sen. Coverdell criticized that approach, saying: “The effect of it is designed to make moot the education savings accounts.”

On February 29, the Senate rejected the first such amendment, offered by Sen. Christopher Dodd (D-CT), which would have shifted the funds to the Individuals with Disabilities Education Act (IDEA), a program that provides education for disabled students, which was tabled by a vote of 54-44. Similar proposals were considered later in the week, including:

  • an amendment by Sen. Charles Robb (D-VA) to use the funds for school renovations, which was tabled 57-42;
  • an amendment by Sen. Jeff Bingaman (D-NM) to use the funds for efforts to improve school performance, which was tabled 58-40;
  • an amendment by Sen. Patty Murray (D-WA) to use the funds for reducing class size by hiring new teachers, which was defeated 42-56;
  • an amendment by Sen. Edward Kennedy (D-MA) to use the funds for teacher training, mentoring, and recruitment programs, which was defeated, 39-60; and
  • an amendment by Sen. Jeff Bingaman (D-NM) to use the funds for increased Pell Grant assistance, which was defeated 41-57. Several other amendments were considered during the week. On February 29, the Senate approved, 98-0, an amendment to allow public school teachers to deduct from their taxes the expense of any supplies they purchase, disregarding the current 2 percent cap on personal deductions. Sponsored by Sen. Susan Collins (R-ME), the amendment also would allow a $100 tax credit for teachers who purchase classroom materials or pay for their own professional development courses.

A number of other amendments were accepted by the Senate, including:

  • an amendment by Sens. Spencer Abraham (R-MI) and Ron Wyden (D-OR) to expand tax breaks for businesses that donate computers to schools, which was approved 96-2;
  • an amendment by Sen. Bob Graham (D-FL) to provide $25 million in FY2001 for grants to colleges and universities that retrain individuals seeking to change careers and teach in high-poverty areas, which was approved by voice vote;
  • an amendment by Sen. Kay Bailey Hutchison (R-TX) to provide stipends for military retirees who become teachers, which was approved by voice vote;
  • an amendment by Sen. Paul Wellstone (D-MN) to require a study by the Department of Health and Human Services on child poverty following enactment of the 1996 welfare reform law (P.L. 104-193), which was approved 89-9;
  • an amendment by Sen. William Roth (D-DE) to remove a 2004 expiration date, making the ESA program permanent and funding it with the budget surplus, which was approved 59-40;
  • an amendment by Sen. Orrin Hatch (R-UT) to adjust the ESA eligibility requirements, allowing participation of single parents with incomes up to $100,000 and married parents with incomes up to $200,000, which was approved 54-43;
  • an amendment by Sen. Orrin Hatch (R-UT) to adjust eligibility requirements to account for the marriage tax penalty, which was approved by voice vote; and
  • an amendment by Sen. Richard Durbin (D-IL) to provide violence prevention programs in public schools, which was approved by voice vote. The Senate also approved, 91-7, an amendment by Sen. Coverdell expressing the sense of the Senate that the Safe and Drug-Free Schools Act (SDFSA) should be reauthorized with the intent of encouraging zero-tolerance policies toward violence and illicit drugs in public schools.

The SDFSA is part of the Elementary and Secondary Education Act (ESEA), which is due for reauthorization this year. On March 7, the Senate Health, Education, Labor and Pensions Committee is scheduled to mark up its ESEA reauthorization package (S. 2). In the House, where the reauthorization is moving as several separate bills, two measures (H.R. 2, H.R. 1995) have been approved; action on more ESEA bills is expected soon.

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