Obama Calls For Permanent Education Tax Credit

by Mike Godfrey, Tax-News.com, Hong Kong

18 October 2010

To extend its coverage and avoid its expiry at the end of this year, President Obama is asking the United States Congress to make the American Opportunity Tax Credit (AOTC) permanent.

The AOTC was introduced as part of the economic stimulus within the American Recovery and Reinvestment Act 2009. For tax years 2009 and 2010, it allows families with tuition expenses to receive a tax credit of up to USD2,500 per student, and up to USD1,000 per year of that amount is refundable.

According to the Treasury, the AOTC has increased tax incentives for higher education by over 90%, or USD8.7bn, in 2009. 12.5m students and their families received such a tax incentive during the year, an increase of 400,000 over 2008. If the AOTC was to be made permanent, as proposed in the President’s 2011 Budget, a student could receive a credit up to USD10,000 over four years.

President Obama said that he is “calling on Congress to make this tax credit permanent so it’s worth up to USD10,000 for four years of college –- because we’ve got to make sure that in good times or bad, our families can invest in their children’s future and in the future of our country.”

However, such a proposal is likely to be caught up within a Congress that is still considering the Jobs Creation and Tax Cuts Act which includes the extension of tax cuts for individuals, families and employers (the so-called “tax extenders” legislation), while closing tax loopholes for wealthy investment fund managers and large corporations, as well as the possible extension, in whole or in part, of the Bush tax cuts before they expire on January 1.

Given the size of the federal deficit, the question of what tax breaks to extend, and how to pay for them, becomes crucial. It is therefore unlikely that there will be any movement in these matters before the mid-term elections next month.

Recommended