I

107TH CONGRESS

1ST SESSION H. R. 1777

To amend the Internal Revenue Code of 1986 to make higher education

more affordable by providing a tax deduction for higher education expenses, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

MAY 9, 2001

Mr. HOLT introduced the following bill; which was referred to the Committee

on Ways and Means, and in addition to the Committee on Education and

the Workforce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

A BILL

To amend the Internal Revenue Code of 1986 to make

higher education more affordable by providing a tax deduction for higher education expenses, and for other

purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Higher Education Af5 fordability and Fairness Act’’.
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1 SEC. 2. DEDUCTION FOR HIGHER EDUCATION EXPENSES.

2 (a) DEDUCTION ALLOWED.—Part VII of subchapter

3 B of chapter 1 of the Internal Revenue Code of 1986 (re4 lating to additional itemized deductions for individuals) is

5 amended by redesignating section 222 as section 223 and

6 by inserting after section 221 the following:

7 ‘‘SEC. 222. HIGHER EDUCATION EXPENSES.

8 ‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an

9 individual, there shall be allowed as a deduction an

10 amount equal to the qualified tuition and related expenses

11 paid by the taxpayer during the taxable year.

12 ‘‘(b) LIMITATIONS.—

13 ‘‘(1) LIMITATION FOR FIRST 2 YEARS OF POST14 SECONDARY EDUCATION.—For any taxable year pre15 ceding a taxable year described in paragraph (2),

16 the amount of qualified tuition and related expenses

17 which may be taken into account under subsection

18 (a) shall not exceed—

19 ‘‘(A) except as provided in subparagraph

20 (B), the excess (if any) of—

21 ‘‘(i) the lesser of—

22 ‘‘(I) $10,000 for each eligible

23 student, or

24 ‘‘(II) $15,000, over

25 ‘‘(ii) the amount of such expenses

26 which are taken into account in deter-
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1 mining the credit allowable to the taxpayer

2 or any other person under section

3 25A(a)(1) with respect to such expenses,

4 and

5 ‘‘(B) in the case of a taxpayer with respect

6 to which the credit under section 25A(a)(1) is

7 reduced to zero by reason of section 25A(d)(1),

8 $5,000.

9 ‘‘(2) LIMITATION FOR SECOND 2 YEARS OF

10 POSTSECONDARY EDUCATION.—For any taxable year

11 if an eligible student has completed (before the be12 ginning of such taxable year) the first 2 years of

13 postsecondary education at an eligible educational

14 institution, the amount of qualified tuition and re15 lated expenses which may be taken into account

16 under subsection (a) shall not exceed—

17 ‘‘(A) except as provided in subparagraph

18 (B) or (C), $10,000,

19 ‘‘(B) in the case of a taxpayer with respect

20 to which a credit under section 25A(a)(1) would

21 be reduced to zero by reason of section

22 25A(d)(1), $5,000, and

23 ‘‘(C) in the case of taxpayer with respect

24 to whom the credit under section 25A(a)(2) is

25 allowed for such taxable year, zero.
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1 ‘‘(3) DEDUCTION ALLOWED ONLY FOR 4 TAX2 ABLE YEARS FOR EACH ELIGIBLE STUDENT.—A de3 duction may not be allowed under subsection (a)

4 with respect to the qualified tuition and related ex5 penses of an eligible student for any taxable year if

6 such a deduction was allowable with respect to such

7 expenses for such student for any 4 prior taxable

8 years.

9 ‘‘(c) QUALIFIED TUITION AND RELATED EX10 PENSES.—For purposes of this section, the term ‘qualified

11 tuition and related expenses’ has the meaning given such

12 term by section 25A(f)(1) (determined with regard to sec13 tion 25A(c)(2)(B)).

14 ‘‘(d) ELIGIBLE STUDENT.—For purposes of this sec15 tion, the term ‘eligible student’ has the meaning given

16 such term by section 25A(b)(3).

17 ‘‘(e) SPECIAL RULES.—For purposes of this

18 section—

19 ‘‘(1) IDENTIFICATION REQUIREMENT.—No de20 duction shall be allowed under subsection (a) to a

21 taxpayer with respect to an eligible student unless

22 the taxpayer includes the name, age, and taxpayer

23 identification number of such eligible student on the

24 return of tax for the taxable year.

25 ‘‘(2) NO DOUBLE BENEFIT.—
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1 ‘‘(A) COORDINATION WITH EXCLUSIONS.—

2 The amount of qualified tuition and related ex3 penses otherwise taken into account under sub4 section (a) with respect to an eligible student

5 shall be reduced (before the application of sub6 section (b)) by the amount of such expenses

7 which are taken into account in determining the

8 exclusion under section 135 or 530(d)(2) for

9 the taxable year.

10 ‘‘(B) DEPENDENTS.—No deduction shall

11 be allowed under subsection (a) to any indi12 vidual with respect to whom a deduction under

13 section 151 is allowable to another taxpayer for

14 a taxable year beginning in the calendar year in

15 which such individual’s taxable year begins.

16 ‘‘(3) LIMITATION ON TAXABLE YEAR OF DE17 DUCTION.—

18 ‘‘(A) IN GENERAL.—A deduction shall be

19 allowed under subsection (a) for qualified tui20 tion and related expenses for any taxable year

21 only to the extent such expenses are in connec22 tion with enrollment at an institution of higher

23 education during the taxable year.

24 ‘‘(B) CERTAIN PREPAYMENTS ALLOWED.—

25 Subparagraph (A) shall not apply to qualified
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1 tuition and related expenses paid during a tax2 able year if such expenses are in connection

3 with an academic term beginning during such

4 taxable year or during the first 3 months of the

5 next taxable year.

6 ‘‘(4) ADJUSTMENT FOR CERTAIN SCHOLAR7 SHIPS AND VETERANS BENEFITS.—The amount of

8 qualified tuition and related expenses otherwise

9 taken into account under subsection (a) with respect

10 to the education of an individual shall be reduced

11 (before the application of subsection (b)) by the sum

12 of the amounts received with respect to such indi13 vidual for the taxable year as—

14 ‘‘(A) a qualified scholarship which under

15 section 117 is not includable in gross income,

16 ‘‘(B) an educational assistance allowance

17 under chapter 30, 31, 32, 34, or 35 of title 38,

18 United States Code, or

19 ‘‘(C) a payment (other than a gift, be20 quest, devise, or inheritance within the meaning

21 of section 102(a)) for educational expenses, or

22 attributable to enrollment at an eligible edu23 cational institution, which is exempt from in24 come taxation by any law of the United States.
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1 ‘‘(5) NO DEDUCTION FOR MARRIED INDIVID2 UALS FILING SEPARATE RETURNS.—If the taxpayer

3 is a married individual (within the meaning of sec4 tion 7703), this section shall apply only if the tax5 payer and the taxpayer’s spouse file a joint return

6 for the taxable year.

7 ‘‘(6) NONRESIDENT ALIENS.—If the taxpayer is

8 a nonresident alien individual for any portion of the

9 taxable year, this section shall apply only if such in10 dividual is treated as a resident alien of the United

11 States for purposes of this chapter by reason of an

12 election under subsection (g) or (h) of section 6013.

13 ‘‘(7) REGULATIONS.—The Secretary may pre14 scribe such regulations as may be necessary or ap15 propriate to carry out this section, including regula16 tions requiring recordkeeping and information re17 porting.’’.

18 (b) DEDUCTION ALLOWED IN COMPUTING AD19 JUSTED GROSS INCOME.—Section 62(a) of the Internal

20 Revenue Code of 1986 is amended by inserting after para21 graph (17) the following:

22 ‘‘(18) HIGHER EDUCATION EXPENSES.—The

23 deduction allowed by section 222.’’.

24 (c) DETERMINATION OF ADJUSTED GROSS INCOME

25 WITH RESPECT TO OTHER BENEFITS.—
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1 (1) Section 21(a)(2) of the Internal Revenue

2 Code of 1986 is amended by inserting ‘‘(determined

3 without regard to section 222)’’ after ‘‘adjusted

4 gross income’’.

5 (2) Section 22(d) of such Code is amended—

6 (A) by inserting ‘‘(determined without re7 gard to section 222)’’ after ‘‘adjusted gross in8 come’’ the first place it appears, and

9 (B) by inserting ‘‘(as so determined)’’ after

10 ‘‘adjusted gross income’’ the second place it ap11 pears.

12 (3) Section 23(b)(2)(B) of such Code is amend13 ed by inserting ‘‘222,’’ before ‘‘911’’.

14 (4) Section 24(b)(1) of such Code is amended

15 by inserting ‘‘222,’’ before ‘‘911’’.

16 (5) Section 86(b)(2)(A) of such Code is amend17 ed by inserting ‘‘222,’’ before ‘‘911’’.

18 (6) Section 137(b)(3)(A) of such Code is

19 amended by inserting ‘‘222,’’ before ‘‘911’’.

20 (7) Section 151(d)(3) of such Code is

21 amended—

22 (A) by inserting ‘‘(determined without re23 gard to section 222)’’ after ‘‘adjusted gross in24 come’’ in subparagraph (A), and
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1 (B) by inserting ‘‘(as so determined)’’ after

2 ‘‘adjusted gross income’’ in subparagraph (B).

3 (8) Section 165(h)(2)(A)(ii) of such Code is

4 amended by inserting ‘‘(determined without regard

5 to section 222)’’ after ‘‘adjusted gross income’’.

6 (9) Section 213(a) of such Code is amended by

7 inserting ‘‘(determined without regard to section

8 222)’’ after ‘‘adjusted gross income’’.

9 (10) Section 219(g)(3)(A)(ii) of such Code is

10 amended by inserting ‘‘222,’’ after ‘‘221,’’.

11 (11) Section 221(b)(2)(C)(i) of such Code is

12 amended by inserting ‘‘222,’’ before ‘‘911’’.

13 (12) Section 403(b)(3)(D) of such Code is

14 amended—

15 (A) by inserting ‘‘(determined without re16 gard to section 222)’’ after ‘‘adjusted gross in17 come’’ in clause (ii), and

18 (B) by inserting ‘‘(as so determined)’’ after

19 ‘‘adjusted gross income’’ in the matter following

20 clause (ii).

21 (13) Section 469(i)(3)(E)(iii) of such Code is

22 amended by striking ‘‘and 221’’ and inserting ‘‘,

23 221, and 222’’.

24 (14) Section 1400C(b)(2) of such Code is

25 amended by inserting ‘‘222,’’ before ‘‘911’’.
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1 (d) CONFORMING AMENDMENTS.—The table of sec2 tions for part VII of subchapter B of chapter 1 of the

3 Internal Revenue Code of 1986 is amended by striking the

4 item relating to section 222 and inserting the following:

‘‘Sec. 222. Higher education expenses.

‘‘Sec. 223. Cross reference.’’.

5 (e) EFFECTIVE DATE.—The amendments made by

6 this section shall apply to expenses paid after December

7 31, 2001 (in taxable years ending after such date), for

8 education furnished in academic periods beginning after

9 such date.

10 SEC. 3. EDUCATION TAX CREDIT FAIRNESS.

11 (a) IN GENERAL.—Section 25A(c)(1) of the Internal

12 Revenue Code of 1986 (relating to lifetime learning credit)

13 is amended by striking ‘‘2003’’ and inserting ‘‘2002’’.

14 (b) INCREASE IN AGI LIMITS.—

15 (1) IN GENERAL.—Subsection (d) of section

16 25A of the Internal Revenue Code of 1986 is

17 amended to read as follows:

18 ‘‘(d) LIMITATION BASED ON MODIFIED ADJUSTED

19 GROSS INCOME.—

20 ‘‘(1) HOPE CREDIT.—

21 ‘‘(A) IN GENERAL.—The amount which

22 would (but for this subsection) be taken into ac23 count under subsection (a)(1) shall be reduced
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1 (but not below zero) by the amount determined

2 under subparagraph (B).

3 ‘‘(B) AMOUNT OF REDUCTION.—The

4 amount determined under this subparagraph

5 equals the amount which bears the same ratio

6 to the amount which would be so taken into ac7 count as—

8 ‘‘(i) the excess of—

9 ‘‘(I) the taxpayer’s modified ad10 justed gross income for such taxable

11 year, over

12 ‘‘(II) $50,000 ($100,000 in the

13 case of a joint return), bears to

14 ‘‘(ii) $10,000 ($20,000 in the case of

15 a joint return).

16 ‘‘(2) LIFETIME LEARNING CREDIT.—

17 ‘‘(A) IN GENERAL.—The amount which

18 would (but for this subsection) be taken into ac19 count under subsection (a)(2) shall be reduced

20 (but not below zero) by the amount determined

21 under subparagraph (B).

22 ‘‘(B) AMOUNT OF REDUCTION.—The

23 amount determined under this subparagraph

24 equals the amount which bears the same ratio
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1 to the amount which would be so taken into ac2 count as—

3 ‘‘(i) the excess of—

4 ‘‘(I) the taxpayer’s modified ad5 justed gross income for such taxable

6 year, over

7 ‘‘(II) $40,000 ($80,000 in the

8 case of a joint return), bears to

9 ‘‘(ii) $10,000 ($20,000 in the case of

10 a joint return).

11 ‘‘(3) MODIFIED ADJUSTED GROSS INCOME.—

12 For purposes of this subsection, the term ‘modified

13 adjusted gross income’ means the adjusted gross in14 come of the taxpayer for the taxable year increased

15 by any amount excluded from gross income under

16 section 911, 931, or 933.’’.

17 (2) CONFORMING AMENDMENT.—Paragraph (2)

18 of section 25A(h) of such Code is amended to read

19 as follows:

20 ‘‘(2) INCOME LIMITS.—

21 ‘‘(A) HOPE CREDIT.—In the case of a tax22 able year beginning after 2002, the $50,000

23 and $100,000 amounts in subsection

24 (d)(1)(B)(i)(II) shall be increased by an amount

25 equal to—
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1 ‘‘(i) such dollar amount, multiplied by

2 ‘‘(ii) the cost-of-living adjustment de3 termined under section 1(f)(3) for the cal4 endar year in which the taxable year be5 gins, determined by substituting ‘calendar

6 year 2001’ for ‘calendar year 1992’ in sub7 paragraph (B) thereof.

8 ‘‘(B) LIFETIME LEARNING CREDIT.—In

9 the case of a taxable year beginning after 2001,

10 the $40,000 and $80,000 amounts in sub11 section (d)(2)(B)(i)(II) shall be increased by an

12 amount equal to—

13 ‘‘(i) such dollar amount, multiplied by

14 ‘‘(ii) the cost-of-living adjustment de15 termined under section 1(f)(3) for the cal16 endar year in which the taxable year be17 gins, determined by substituting ‘calendar

18 year 2000’ for ‘calendar year 1992’ in sub19 paragraph (B) thereof.

20 ‘‘(C) ROUNDING.—If any amount as ad21 justed under subparagraph (A) or (B) is not a

22 multiple of $1,000, such amount shall be

23 rounded to the next lowest multiple of $1,000.’’.

24 (c) COORDINATION WITH OTHER HIGHER EDU25 CATION BENEFITS.—
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1 (1) Subsection (e) of section 25A of the Inter2 nal Revenue Code of 1986 is amended to read as fol3 lows:

4 ‘‘(e) ELECTION NOT TO HAVE SECTION APPLY.—A

5 taxpayer may elect not to have this section apply with re6 spect to the qualified tuition and related expenses of an

7 individual for any taxable year.’’.

8 (2) Section 25A (g) of such Code is amended

9 by striking paragraph (5) and by redesignating

10 paragraphs (6) and (7) as paragraphs (5) and (6),

11 respectively.

12 (3) Section 135(d)(2)(A) of such Code is

13 amended by striking ‘‘allowable’’ and inserting ‘‘al14 lowed’’.

15 (d) EFFECTIVE DATE.—The amendments made by

16 this section shall apply to expenses paid after December

17 31, 2001 (in taxable years ending after such date), for

18 education furnished in academic periods beginning after

19 such date.

20 SEC. 4. RELATIONSHIP BETWEEN TUITION AND FINANCIAL

21 AID.

22 (a) STUDY.—The Comptroller General of the United

23 States shall conduct an annual study to examine whether

24 the Federal income tax incentives to provide education as25 sistance affect higher education tuition rates in order to
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1 identify if institutions of higher education are absorbing

2 the intended savings by raising tuition rates.

3 (b) REPORT.—The Comptroller General of the

4 United States shall report the results of the study required

5 under subsection (a) to Congress on an annual basis.

6 SEC. 5. SENSE OF THE HOUSE OF REPRESENTATIVES RE7 GARDING PELL GRANTS.

8 It is the sense of the House of Representatives that

9 the maximum Pell Grant should be increased to $4,700

10 to pay approximately—

11 (1) 20 percent of the tuition, fees, room and

12 board, and other expenses of the average college, or

13 (2) the tuition and fees of the average public

14 college.

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