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President to President
Molly Corbett Broad's weekly email newsletter to higher education leaders.

President to President: Congress Approves Bill to Avert Fiscal Cliff

Vol. 14, No. 1

  • ​Congress Approves Bill to Avert Fiscal Cliff
  • House Passes Veterans Consumer Information Measure
  • ACE's 95th Annual Meeting to Feature Sessions of International Interest

With the entire world watching, Congress greeted the new year by approving legislation to prevent the nation from falling over the "fiscal cliff" on Dec. 31.

The measure, a package of tax increases, tax cuts and a delay in the automatic spending reduction known as "sequestration," passed the Senate by a vote of 89-8 in the early hours of Jan. 1, with the House following late that evening by a vote of 257-167.

The cornerstone of the American Taxpayer Relief Act of 2012 (H.R. 8) is an agreement to raise taxes on individuals earning at least $400,000 and families making $450,000 (for a summary of the major provisions, see National Journal). While this tax provision has received considerable media attention, a number of the other tax changes in this measure are very good news for students, families and higher education institutions:

  • A five-year extension of the American Opportunity Tax Credit (AOTC), which allows students and their parents to claim up to $2,500 a year for college expenses, and benefits 9 million families a year.
  • Sec. 127 employer-provided education expenses, the Student Loan Interest Deduction, and the Coverdell Education Savings Accounts have been made permanent parts of the tax code. (Previously, they had been temporary parts of the tax code that needed to be renewed periodically.)
  • An extension of the above-the-line tuition tax deduction, allowing students and families to deduct between $2,000 and $4,000 of tuition and fees each year, depending on income. This deduction is taken as an adjustment to income, which means families who do not benefit from the AOTC can claim it even if they do not itemize. The extension runs through Dec. 31, 2013.
  • An extension of the research and development tax credit through Dec. 31, 2013.
  • An extension of the IRA Rollover that lets taxpayers donate funds from an IRA to charitable organizations without incurring a tax liability through Dec. 31, 2013.

However, the tax news is not all good. One provision in the package lowers the value of charitable contributions for individuals whose income exceeds $250,000 and married taxpayers filing jointly with incomes more than $300,000. We are disappointed in this provision, but it is better than other proposals under consideration that would have scaled back the value of the charitable deduction significantly.

Our biggest concern with the measure as passed is that it simply postpones the multi-billion-dollar impact of sequestration. As you will recall, the debt ceiling deal hammered out by the president and Congress in August 2011 included a "triggered" budget cut, or sequester, unless they found a way to cut $1.2 trillion from the budget by the end of 2012. Half of the money would be taken from domestic discretionary spending and the remaining half from the defense budget. The legislation signed by the president on Jan. 2 simply postpones these cuts until March 1.

Unless Congress intervenes beforehand, most higher education programs will face reductions of roughly 6 percent, although those numbers have been in flux. These cuts would be especially harsh on research funding at the National Institutes of Health (roughly $2 billion) and the National Science Foundation (roughly $500 million). Many Department of Education programs would also be reduced. However, federal student loans would largely be protected, and Pell Grants are actually scheduled to increase for the 2013-14 academic year. There will be a great deal of discussion in the coming weeks about whether to allow sequestration to proceed or to block it before March 1.

In addition to sequestration, we will hit two additional fiscal cliffs within 90 days:

  1. Hitting the debt ceiling. On Dec. 31, Treasury Secretary Timothy Geithner announced that by the end of February or early March, the federal government will lose its ability to borrow money under the current $16.4 trillion limit. This sets up a renewal of the conflict in the summer of 2011 that brought the country within days of default and led to the historic downgrade of the nation's credit rating. Congressional Republicans say they will continue to demand that any increase in the debt limit be tied to significant spending cuts. President Obama, however, has vowed not to negotiate on the issue.
  2. Keeping the government funded. Congress has not yet approved any of the 12 spending bills needed to fund the federal government for fiscal year 2013, which started Oct. 1. The government is currently operating under a continuing resolution (CR), a stopgap measure used to fund federal agencies, which will expire on March 27. By that date, Congress must pass all 12 appropriations bills or approve another CR.

So as the 112th Congress adjourned, it left an overwhelming workload for the 113th Congress to address. It goes without saying that we will be hearing much more highly charged political rhetoric in the months ahead.

Before turning to the fiscal cliff bill, the House on Sunday voted 392-3 to give final approval to the Improving Transparency of Education Opportunities for Veterans Act (H.R. 4057), which directs the secretary of Veterans Affairs to develop a comprehensive policy to provide important consumer information for veterans using GI Bill education benefits.

ACE and other higher education associations worked to shape the final legislation, which mirrors a substitute amendment offered in the Senate. We expressed our support last month for that version in a letter to Sens. Patty Murray (D-WA) and Richard M. Burr (R-NC). The bill ensures the consumer information requirements will complement, rather than duplicate, similar efforts already underway at the Department of Education or other federal agencies, or as part of the White House Principles of Excellence initiative. We also strongly support provisions in the bill aimed at protecting veterans from fraudulent and unduly aggressive recruiting practices, which have occurred at a small subset of institutions.

President Obama is expected to sign the measure.

Two months remain until ACE's 95th Annual Meeting, scheduled for March 2-5, 2013, in Washington.

International guests and those interested in global issues will find many useful sessions at this year's meeting, including a special panel on Saturday with presidents of colleges and universities in Latin America, the traditional Saturday evening international welcoming reception, and a Monday morning session on our role as higher education leaders in international development, among other events.

Registration is open on the Annual Meeting website, and those of you who use social media can join the conversation on Twitter by using the hashtag #LeadingChange13 or "like" our Facebook page for updates.

Molly Corbett Broad
President of ACE