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Education Tax Incentives

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Ryan Carlock

on 8 April 2013

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Transcript of Education Tax Incentives

Inequalities: Tax Incentives for College Savings b) Coverdell Savings Accounts c) Education Savings Bonds a) Qualified Tuition Plans Matrix Partners preso! Harvard Business Review How to lower the cost of enterprise sales? Rene Birthday But... Simplify: Keep What Works: Tax Incentives for Current Expenses Complexities: Correct Definitions? Income Limits? Record Keeping & Reporting? Other Incentives What to do? Estimated Cost Brief History ? How Tax Incentives for Past Expenses Key Issues: ...thus higher- and middle- income taxpayers will receive a greater benefit than those the incentives were intended for Many of the tax incentives intended to assist lower-income taxpayers are regressive... The tax incentives often do not reach the intended beneficiaries... ...because the tax incentives are too complex and inefficient. Objectives T H N A K Y O U P R E Z I Results: Why What How Questions? Tax Incentives
for Higher Education Make higher education
affordable for all who wish to
obtain it. Achieve Positive
Externalities Do they work as intended? How can they be reformed? Tax Credits American Opportunity & Hope Tax Credits Lifetime Learning Credit Qualified Expense Deductions Qualified Scholarship & Tuition Deduction (529 Plans) d) Other Savings Incentives Student Loan Interest Deduction Student Loan Forgiveness Qualified Tuition Plans (529 plans) Coverdell Education Savings Accounts Education Savings Bonds & Other Incentives Possible
Reform Employer-Provided Educational Assistance Dependency Exemption for Students ages 19-23 Gift Tax Exclusion for Education Expenses Source: I.R.S. Pub. 970 (2012) Source: I.R.S. Pub. 970 (2012) Education Savings Bonds Leading to Higher wages Better Health Lower crime More informed, civic-minded citizenry Increased Social Mobility Increased Labor Productivity Individual Society Permanent? Qualifying Expenses?
Eligible Instituion? How much is too much? What to include with tax
return? Does this provision expire? Do the incentives
reach the appropriate target? Education Tax Credits are regressive -Income limit phase outs prevent higher income taxpayers from taking advantage of the credits...

-But... low-income taxpayers are often unable to use the credits because their tax liability is reduced to $0. -The American Opportunity Credit is partially refundable...

-But... only up to 40% Inefficiencies: D.O.E. I.R.S. Simplification Efficiency Equity -$3,800 personal exemption available for each dependent who is a "qualifying child." Qualifying Child (1) Relationship
(2) Age
(3) Principal Place of Abode
(4) Support
(5) Type of Return filed Age Test (1) Under age 19 at the end of the calendar year
(2)Or under 24 at the end of the calendar year if dependent is a student -I.R.C. Section 2503(b) - $14,000 Annual Exclusion Amount for 2013 -Certain tuition payments are not considered transfers of property for gift tax purposes - I.R.C. 2503(e). Fraudulent Claims 529 Plans: 529 Plans Coverdell Savings Accounts Qualified Scholarship Exclusion Loan Forgiveness Combine Process Uniform Definitions Better Targeting Eliminate & Reform: Combine Credits Expand Qualified Expenses Eliminate Deductions But What About... -Similarities to Welfare-Style Payments? -Possibility for Fraud? -Increased Administrative Costs? Welfare-Style Payments? Possible Fraud? Increased Costs? { Lead To -Only 3% make of US households use -Around 1/3 of U.S. households lack
financial assets to invest. Deductions: -Make too much -Don't make enough -Already graduated -EITC is unfettered use of $$ -- But education credits can only be used for education expenses -Education credits will absorbed by the cost of education expenses, thus NO accretion to wealth -EITC forever... Education Credit only while in school. -Identification Requirements -"Receipt" System & Documentation -Funnel Credit through the educational institution -Simplification of provisions should offset administrative burdens Positive
Externalities Additional
Costs -Good Tax Policy
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