- The Washington Times - Sunday, March 14, 2004


Students heading to college may want to make their first class a short course in tax law. They will need it to work out the myriad tax credits, deductions and savings plans that help defray the rising cost of a college education.

The complications built into tax benefits for students and parents of college-bound children caught the attention of Treasury Department officials. Last month, they asked lawmakers to simplify things.

“These things kind of multiply,” said Gregory Jenner, acting assistant Treasury secretary for taxes. “Now what we’re trying to do is rationalize them.”

Observers cheered the idea but said attempts to straighten out complicated tax laws usually prove politically popular but rarely successful.

“There doesn’t seem to be any glory in simplification,” said David Keating, senior counselor at the National Taxpayers Union. “Most congressmen don’t find any political glory in that.”

Under the current rules, students in their first two years of college qualify for the Hope credit. Upperclassmen, graduate students and professionals can use the lifetime learning credit. Parents with children, or attending school themselves, can claim more than one Hope credit but only one lifetime learning credit.

A taxpayer can take a deduction for up $4,000 of higher education expenses, but only when opting not to use the education credits. A different deduction lets taxpayers recoup some of the cost of student loan interest. It and the other deductions and credits start to disappear as taxpayers earn more.

If that were not confusing enough, each benefit comes with its own definition for the “higher education expenses” that can be defrayed with tax breaks. School fees, room and board, books, supplies and equipment may or may not qualify.

“There’s all sorts of complexities in these credits,” said Karen Yeager, director of tax research H&R; Block, which last year asked Congress to streamline the rules governing education credits. Miss Yeager said the company’s tax hot line gets many calls from people confused by the rules.

The Treasury Department asked lawmakers to shrink the current benefits into two credits. One — still named the Hope credit — would apply to students in their first two years of college. A second would combine all the other benefits into a single tax credit for tuition and some student loan interest, and make the combined credit available to each student in a family.

Both credits would start declining for persons earning $50,000 or more and couples earning $100,000 or more. There would be a single definition for the education expenses that qualify for the tax credits.

It may be a great idea, and some lawmakers have written bills that would simplify the tax laws. But bills adding to the complications also abound, including recent ones that would establish a new deduction for up to $1,000 in textbooks and a new $1,500 tax credit to help graduates pay off their student loans.

“I guess the only way that streamlining would happen … is if every single person who gets one of these benefits would be better off,” said Chris Edwards, father of twins and director of fiscal policy at the Cato Institute.The group believes the government should eliminate special tax breaks.

“It really is very complicated, and I’m supposed to be a tax expert,” he said. “What does the average person do?”

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