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 7, 2003

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

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'.

SEC. 2. DEDUCTION FOR HIGHER EDUCATION EXPENSES.

(a) DEDUCTION ALLOWED- Part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to additional itemized deductions for individuals) is amended by redesignating section 223 as section 224 and by inserting after section 222 the following:

`SEC. 223. HIGHER EDUCATION EXPENSES.

`(a) ALLOWANCE OF DEDUCTION- In the case of an individual, there shall be allowed as a deduction an amount equal to the qualified tuition and related expenses paid by the taxpayer during the taxable year.

`(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.

`(c) QUALIFIED TUITION AND RELATED EXPENSES- For purposes of this section, the term `qualified tuition and related expenses' has the meaning given such term by section 25A(f)(1) (determined with regard to section 25A(c)(2)(B)).

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

`(e) SPECIAL RULES- For purposes of this section--

`(1) IDENTIFICATION REQUIREMENT- No deduction shall be allowed under subsection (a) to a taxpayer with respect to an eligible student unless the taxpayer includes the name, age, and taxpayer identification number of such eligible student on the return of tax for the taxable year.

`(2) NO DOUBLE BENEFIT-

`(A) COORDINATION WITH EXCLUSIONS- The amount of qualified tuition and related expenses otherwise taken into account under subsection (a) with respect to an eligible student shall be reduced (before the application of subsection (b)) by the amount of such expenses which are taken into account in determining the exclusion under section 135 or 530(d)(2) for the taxable year.

`(B) DEPENDENTS- No deduction shall be allowed under subsection (a) to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual's taxable year begins.

`(3) LIMITATION ON TAXABLE YEAR OF DEDUCTION-

`(A) IN GENERAL- A deduction shall be allowed under subsection (a) for qualified tuition and related expenses for any taxable year only to the extent such expenses are in connection with enrollment at an institution of higher education during the taxable year.

`(B) CERTAIN PREPAYMENTS ALLOWED- Subparagraph (A) shall not apply to qualified

tuition and related expenses paid during a taxable year if such expenses are in connection with an academic term beginning during such taxable year or during the first 3 months of the next taxable year.

`(4) ADJUSTMENT FOR CERTAIN SCHOLARSHIPS AND VETERANS BENEFITS- The amount of qualified tuition and related expenses otherwise taken into account under subsection (a) with respect to the education of an individual shall be reduced (before the application of subsection (b)) by the sum of the amounts received with respect to such individual for the taxable year as--

`(A) a qualified scholarship which under section 117 is not includable in gross income,

`(B) an educational assistance allowance under chapter 30, 31, 32, 34, or 35 of title 38, United States Code, or

`(C) a payment (other than a gift, bequest, devise, or inheritance within the meaning of section 102(a)) for educational expenses, or attributable to enrollment at an eligible educational institution, which is exempt from income taxation by any law of the United States.

`(5) NO DEDUCTION FOR MARRIED INDIVIDUALS FILING SEPARATE RETURNS- If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayer's spouse file a joint return for the taxable year.

`(6) NONRESIDENT ALIENS- If the taxpayer is a nonresident alien individual for any portion of the taxable year, this section shall apply only if such individual is treated as a resident alien of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013.

`(7) REGULATIONS- The Secretary may prescribe such regulations as may be necessary or appropriate to carry out this section, including regulations requiring recordkeeping and information reporting.'.

(b) DEDUCTION ALLOWED IN COMPUTING ADJUSTED GROSS INCOME- Section 62(a) of the Internal Revenue Code of 1986 is amended by inserting after paragraph (18) the following:

`(19) HIGHER EDUCATION EXPENSES- The deduction allowed by section 223.'.

(c) DETERMINATION OF ADJUSTED GROSS INCOME WITH RESPECT TO OTHER BENEFITS-

(1) Section 21(a)(2) of the Internal Revenue Code of 1986 is amended by inserting `(determined without regard to section 223)' after `adjusted gross income'.

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

(A) by inserting `(determined without regard to section 223' 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 `223,' before `911'.

(4) Section 24(b)(1) of such Code is amended by inserting `223,' before `911'.

(5) Section 86(b)(2)(A) of such Code is amended by inserting `223,' before `911'.

(6) Section 137(b)(3)(A) of such Code is amended by inserting `223,' before `911'.

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

(A) by inserting `(determined without regard to section 223)' after `adjusted gross income' in subparagraph (A), and

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

(8) Section 165(h)(2)(A)(ii) of such Code is amended by inserting `(determined without regard to section 223)' after `adjusted gross income'.

(9) Section 213(a) of such Code is amended by inserting `(determined without regard to section 223)' after `adjusted gross income'.

(10) Section 219(g)(3)(A)(ii) of such Code is amended by inserting `223,' after `221,'.

(11) Section 221(b)(2)(C)(i) of such Code is amended by inserting `223,' before `911'.

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

(A) by inserting `(determined without regard to section 223)' after `adjusted gross income' in clause (ii), and

(B) by inserting `(as so determined)' after `adjusted gross income' in the matter following clause (ii).

(13) Section 469(i)(3)(E)(iii) of such Code is amended by striking `and 221' and inserting `, 221, and 223'.

(14) Section 1400C(b)(2) of such Code is amended by inserting `223,' before `911'.

(d) CONFORMING AMENDMENTS- The table of sections for part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by striking the item relating to section 223 and inserting the following:

`Sec. 223. Higher education expenses.

`Sec. 224. Cross reference.'.

(e) EFFECTIVE DATE- The amendments made by this section shall apply to expenses paid after December 31, 2001 (in taxable years ending after such date), for education furnished in academic periods beginning after such date.

SEC. 3. EDUCATION TAX CREDIT FAIRNESS.

(a) IN GENERAL- Section 25A(c)(1) of the Internal Revenue Code of 1986 (relating to lifetime learning credit) is amended by striking `2003' and inserting `2002'.

(b) 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 2003, 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 2002' 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.'.

(c) 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.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to expenses paid after December 31, 2002 (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