Senate Finance Committee Hearing on Higher Education and Tax Exemption

On December 5, 2006, the Senate Finance Committee held a hearing entitled, “Report Card on Tax Exemptions and Incentives for Higher Education: Pass, Fail, or Need Improvement?” The hearing was part of the committee’s ongoing oversight of the tax-exempt sector.

In his opening remarks, (PDF) Chairman Charles Grassley (R-IA) expressed his concern that past Congressional efforts to expand access to higher education through financial assistance programs for students and tax breaks to academic institutions have not succeeded in slowing the pace of tuition inflation. He suggested that it might be time to consider alternative tax incentives or requirements for colleges and universities to help control tuition increases and to enhance access to education, particularly for working families. Senator Max Baucus (D-MT), currently ranking Democrat on the Committee, echoed Chairman Grassley in his introductory remarks, emphasizing the need to enhance access to higher education.

Several of the witnesses discussed the effectiveness of current federal financial aid programs, the causes for dramatic increases in college tuition, and stressed the importance of simplifying and focusing student aid programs on those with most financial need to enhance access to education. Daniel Golden of The Wall Street Journal criticized elite academic institutions for favoring affluent students in admissions practices in order to generate additional fundraising and bolster healthy endowments. Dr. Bridget Long of Harvard noted that research does not support the idea that colleges are raising tuition costs in response to federal aid, and that other factors are involved. Dr. Susan Dynarski of Kennedy School of Government at Harvard criticized current education tax incentives for providing few benefits to low-income students and for being overly complex and confusing, thus undermining their effectiveness. She proposed replacing current incentives with a uniform and refundable tax credit to focus on students most in need and to make the incentives simpler to use.

Concerns were also raised about the deductibility of several types of contributions to universities. Senator Grassley questioned whether a contribution is made with charitable intent when its purpose is to increase a child’s chance of admission to a particular school. Similarly, Ms. Patricia McGuire, President of Trinity University in Washington, DC, questioned the charitable intent of donations from businesses to research institutions. Dr. James Duderstadt, President Emeritus of the University of Michigan, pointed out that current law allows fees for skyboxes and licenses to purchase season tickets to be treated in part as charitable deductions and that this should be changed. He lamented what he called “an arms race” in college sports that has little relevance to the tax-exempt mission of the university.

See the Senate Finance Committee website for statements and testimony.

The witnesses at the hearing were:

Mr. Daniel Golden, Deputy Bureau Chief, Boston Bureau, The Wall Street Journal, Boston, MA

Dr. Bridget Terry Long, Associate Professor of Education and Economics, Harvard University, Cambridge, MA

Dr. James Johnson Duderstadt, President Emeritus, University Professor of Science and Engineering, University of Michigan, Ann Arbor, MI

Ms. Patricia McGuire, President, Trinity University, Washington, DC

Dr. Susan M. Dynarski, Associate Professor of Public Policy, Kennedy School of Government, Harvard University, Cambridge, MA

Mr. Michael Brostek, Director, Tax Issues, Strategic Issues Team, U.S. Government Accountability Office, Washington, DC

 

Last Updated: December 8, 2006

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