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.

January 4, 2005

Mr. HOLT (for himself and Mrs. LOWEY) 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

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.

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

SECTION 1. SHORT TITLE.

This Act may be cited as the `Higher Education Affordability and Fairness Act of 2005'.

SEC. 2. DEDUCTION FOR HIGHER EDUCATION EXPENSES.

(a) Increase in Dollar Limitation- Subsection (b) of section 222 of the Internal Revenue Code of 1986 (relating to dollar limitations) is amended to read as follows:

`(b) Limitations-

`(1) LIMITATION FOR FIRST 2 YEARS OF POSTSECONDARY EDUCATION- For any taxable year preceding a taxable year described in paragraph (2), the amount of qualified tuition and related expenses which may be taken into account under subsection (a) shall not exceed--

`(A) except as provided in subparagraph (B), the excess (if any) of--

`(i) the lesser of--

`(I) $10,000 for each eligible student, or

`(II) $15,000, over

`(ii) the amount of such expenses which are taken into account in determining the credit allowable to the taxpayer or any other person under section 25A(a)(1) with respect to such expenses, and

`(B) in the case of a taxpayer with respect to whom the credit under section 25A(a)(1) is reduced to zero by reason of section 25A(d)(1), $5,000.

`(2) LIMITATION FOR SECOND 2 YEARS OF POSTSECONDARY EDUCATION- For any taxable year if an eligible student has completed (before the beginning of such taxable year) the first 2 years of postsecondary education at an eligible educational institution, the amount of qualified tuition and related expenses which may be taken into account under subsection (a) shall not exceed--

`(A) except as provided in subparagraph (B) or (C), $10,000,

`(B) in the case of a taxpayer with respect to which a credit under section 25A(a)(1) would be reduced to zero by reason of section 25A(d)(1), $5,000, and

`(C) in the case of taxpayer with respect to whom the credit under section 25A(a)(2) is allowed for such taxable year, zero.

`(3) DEDUCTION ALLOWED ONLY FOR 4 TAXABLE YEARS FOR EACH ELIGIBLE STUDENT- A deduction may not be allowed under subsection (a) with respect to the qualified tuition and related expenses of an eligible student for any taxable year if such a deduction was allowable with respect to such expenses for such student for any 4 prior taxable years.

`(4) ELIGIBLE STUDENT- For purposes of this section, the term `eligible student' has the meaning given such term by section 25A(b)(3).'.

(b) Repeal of Termination- Section 222 of such Code is amended by striking subsection (e).

(c) Determination of Adjusted Gross Income With Respect to Other Benefits-

(1) Section 21(a)(2) of such Code is amended by inserting `(determined without regard to section 222)' after `adjusted gross income'.

(2) Section 22(d) of such Code is amended--

(A) by inserting `(determined without regard to section 222)' after `adjusted gross income' the first place it appears, and

(B) by inserting `(as so determined)' after `adjusted gross income' the second place it appears.

(3) Section 23(b)(2)(B) of such Code is amended by inserting `222,' before `911'.

(4) Section 24(b)(1) of such Code is amended by inserting `222,' before `911'.

(5) Section 151(d)(3) of such Code is amended--

(A) by inserting `(determined without regard to section 222)' after `adjusted gross income' in subparagraph (A), and

(B) by inserting `(as so determined)' after `adjusted gross income' in subparagraph (B).

(6) Section 165(h)(2)(A)(ii) of such Code is amended by inserting `(determined without regard to section 222)' after `adjusted gross income'.

(7) Section 213(a) of such Code is amended by inserting `(determined without regard to section 222)' after `adjusted gross income'.

(8) Section 1400C(b)(2) of such Code is amended by inserting `222,' before `911'.

(d) Effective Date- The amendments made by this section shall apply to expenses paid after December 31, 2004 (in taxable years ending after such date), for education furnished in academic periods beginning after such date.

SEC. 3. EDUCATION TAX CREDIT FAIRNESS.

(a) Increase in AGI Limits-

(1) IN GENERAL- Subsection (d) of section 25A of the Internal Revenue Code of 1986 is amended to read as follows:

`(d) Limitation Based on Modified Adjusted Gross Income-

`(1) HOPE CREDIT-

`(A) IN GENERAL- The amount which would (but for this subsection) be taken into account under subsection (a)(1) shall be reduced (but not below zero) by the amount determined under subparagraph (B).

`(B) AMOUNT OF REDUCTION- The amount determined under this subparagraph equals the amount which bears the same ratio to the amount which would be so taken into account as--

`(i) the excess of--

`(I) the taxpayer's modified adjusted gross income for such taxable year, over

`(II) $50,000 ($100,000 in the case of a joint return), bears to

`(ii) $10,000 ($20,000 in the case of a joint return).

`(2) LIFETIME LEARNING CREDIT-

`(A) IN GENERAL- The amount which would (but for this subsection) be taken into account under subsection (a)(2) shall be reduced (but not below zero) by the amount determined under subparagraph (B).

`(B) AMOUNT OF REDUCTION- The amount determined under this subparagraph equals the amount which bears the same ratio to the amount which would be so taken into account as--

`(i) the excess of--

`(I) the taxpayer's modified adjusted gross income for such taxable year, over

`(II) $40,000 ($80,000 in the case of a joint return), bears to

`(ii) $10,000 ($20,000 in the case of a joint return).

`(3) MODIFIED ADJUSTED GROSS INCOME- For purposes of this subsection, the term `modified adjusted gross income' means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933.'.

(2) CONFORMING AMENDMENT- Paragraph (2) of section 25A(h) of such Code is amended to read as follows:

`(2) INCOME LIMITS-

`(A) HOPE CREDIT- In the case of a taxable year beginning after 2005, the $50,000 and $100,000 amounts in subsection (d)(1)(B)(i)(II) shall be increased by an amount equal to--

`(i) such dollar amount, multiplied by

`(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting `calendar year 2004' for `calendar year 1992' in subparagraph (B) thereof.

`(B) LIFETIME LEARNING CREDIT- In the case of a taxable year beginning after 2001, the $40,000 and $80,000 amounts in subsection (d)(2)(B)(i)(II) shall be increased by an amount equal to--

`(i) such dollar amount, multiplied by

`(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting `calendar year 2000' for `calendar year 1992' in subparagraph (B) thereof.

`(C) ROUNDING- If any amount as adjusted under subparagraph (A) or (B) is not a multiple of $1,000, such amount shall be rounded to the next lowest multiple of $1,000.'.

(b) Coordination With Other Higher Education Benefits- Section 25A(g) of such Code is amended by striking paragraph (5) and by redesignating paragraphs (6) and (7) as paragraphs (5) and (6), respectively.

(c) Effective Date- The amendments made by this section shall apply to expenses paid after December 31, 2004 (in taxable years ending after such date), for education furnished in academic periods beginning after such date.

SEC. 4. RELATIONSHIP BETWEEN TUITION AND FINANCIAL AID.

(a) Study- The Comptroller General of the United States shall conduct an annual study to examine whether the Federal income tax incentives to provide education assistance affect higher education tuition rates in order to identify if institutions of higher education are absorbing the intended savings by raising tuition rates.

(b) Report- The Comptroller General of the United States shall report the results of the study required under subsection (a) to Congress on an annual basis.

SEC. 5. SENSE OF THE HOUSE OF REPRESENTATIVES REGARDING PELL GRANTS.

It is the sense of the House of Representatives that the maximum Pell Grant should be increased to $4,700 to pay approximately--

(1) 20 percent of the tuition, fees, room and board, and other expenses of the average college, or

(2) the tuition and fees of the average public college.

END