Following is a summary of tax-related issues of particular interest to the University community in legislation currently under consideration by the U.S. House and Senate. The House passed its version of the tax bill on June 26, and the Senate passed its version on June 27. Overall, the Senate tax bill is preferable, from the University's perspective, to the House bill. House and Senate leaders are meeting in conference committee to reconcile differences between the two bills. While the House has not yet named conferees, the Senate conferees include Senators Roth (R-DE), Lott (R-MI), Domenici (R-NM), Grassley (R-IA), Nickles (R-OK), Moynihan (D-NY), Lautenberg (D-NJ), and Conrad (D-ND).--C.S.
The New Tax Bill: Implications for the University
In preparation for the House and Senate conference, President Clinton proposed significant revisions to his own tax proposals in order to make them more acceptable to Congressional leaders. Under his revised plan, the President's package includes $42 billion in tax breaks for tuition, while eliminating the $10,000 tax deduction he originally proposed. The House bill would provide about $31 billion and the Senate bill would provide about $32 billion for college-related tax relief. For higher education, there are several significant differences between the House and Senate bills.
Construction: Under present law, tax exempt bonds used to finance construction and renovation projects at private nonprofit institutions are capped at $150 million. This cap affects approximately 30 private colleges and universities, including Penn, adversely impacting our ability to construct new facilities and renovate existing ones. The House tax bill increases the $150 million bond cap by $10 million a year for five years until a $200 million dollar cap is reached. The Senate bill institutes a complete repeal of the cap for new capital expenditures.
Tuition: Other differences include the treatment of Section 117 (d) of the current tax law, a provision which allows individuals to exclude from their gross incomes, "qualified tuition reductions," from an educational organization for the education of an employee, employee's spouse, or dependent children. The House bill proposes to rescind the tax ex-emption for this tuition remission. The House provision would phase out the tax exemption beginning in 1998 gradually until a full repeal in 2002. The Senate bill, however, leaves Section 117 (d) intact.
The House bill also extends Section 127, the tax exemption for certain employer-provided educational assistance for undergraduate course work only through the end of 1997. The Senate bill permanently extends section 127 for both graduate and undergraduate education.
While the House and Senate bills offer less college-related relief than the administration proposed, there are significant incentives created in both bills for families to save and pay for college tuition. The House bill establishes penalty-free withdrawals from IRAs for post-secondary educational expenses. The Senate bill also allows penalty-free withdrawals, and in addition creates several types of tax-free savings accounts, including an account similar to an IRA for educational expenses.
The House bill establishes a $10,000 per year, per student deduction for state pre-paid tuition plans used for undergraduate tuition. The Senate bill does not include a tax deduction for higher education. The House tax bill also includes a tax credit of 50 percent of up to $3,000 in out-of-pocket tuition expenses and books for higher education for individuals with incomes up to $40,000 and couples making up to $80,000. The Senate bill includes a similar measure.
Health Care Issues: As part of a five-year plan to balance the budget, the House and Senate also approved changes in Medicare, Medicaid and other spending programs. Congressional conferees will be appointed to begin negotiations to modify the differences between the Senate and House versions of the spending and tax bills the week of July 14. There are several provisions in these bills of concern to the University of Pennsylvania Health System, including the Medicare "carve-out" and indirect medical education adjustment issues.
Penn supports the "carve-out" of disproportionate share and graduate medical education payments from the HMO managed care payments made by the Medicare program. We support paying those monies directly to the teaching hospitals serving Medicare managed care enrollees. By carving out these funds and paying them directly to the hospitals, Congress would remove the middle man and direct the payments where they are needed.
Through Medicare, the government has historically reimbursed hospitals that are affiliated with medical schools for the costs they incur in training doctors. As part of the overall plan to balance the federal budget, both the Senate and House bills would cut this reimbursement significantly. While Penn does not support the proposed cuts in either version, the Senate language is preferable since it would cut the payments more gradually. These funds are intended to compensate urban hospitals like Penn for the higher costs they incur due to greater service utilization.
Action: If you have any questions or would like further information on how to contact members of the Delaware, New Jersey, or Pennsylvania delegations on any of these issues, please contact our Office of Federal Relations at 898-1532, or me at 898-1388.
-- Carol R. Scheman,
Vice President for Government,Community and Public Affairs
Volume 44 Number 1
July 15, 1997
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