Roth Floor Statement on S. 1134, The Affordable Education Act
WASHINGTON -- Senate Finance Committee Chairman William V. Roth, Jr. (R-DE) today delivered the following statement on the floor on S. 1134, the Affordable Education Act:
"Mr. President, I'm disappointed that we have failed to obtain a unanimous consent agreement to limit amendments with respect to S. 1134, the Affordable Education Act. I hope we move toward passage of this significant bill. The importance of giving American families the resources and means they need to educate their children must be above politics.
"I will soon take a few minutes to walk through the various provisions of the bill. But before I get into the specifics, let me remind my colleagues that all of the concepts in this bill should be very familiar.
"Mr. President, this bill is an 'A+' for American education. Its concepts should be familiar because we have already endorsed them. The base provisions in the bill -- which include the increase in the maximum allowable contribution to an education IRA, the use of the IRA for elementary and secondary school expenses for public and private schools, the tax-free treatment of state-sponsored prepaid tuition plans, and the extension of tax-free treatment for employer-provided educational assistance -- all received bipartisan support from the Finance Committee and the Senate as part of the Taxpayer Relief Act of 1997.
"Despite this Senate support, these provisions were dropped from the bill during conference negotiations. Because of opposition from the Administration, these particular elements failed to be included in the final version of the Taxpayer Relief Act of 1997.
"In addition, these proposals were included in legislation sent to the President in 1998. Unfortunately, the President vetoed that legislation. These bi-partisan proposals were included in the Taxpayer Refund and Relief Act of 1999 which passed last year. Unfortunately, the President vetoed that legislation as well.
"But we must not lose heart. The cause of affordable education is too important. I hope this time we can succeed for the American people. We are here today to show our commitment to affordable education -- and to enact what this body determines makes good sense for American families.
"Mr. President, it is important to note that this tax bill is not designed to answer all of the education-related issues that face this country. Many issues are too varied and complicated to be addressed by the federal government. They need to be solved at the state and local level -- by schools, teachers, and parents working together.
"Instead, this bill is designed to build on the innovative concepts that have been introduced in the last few years. Our goal is to fix the tax code so that it provides the necessary incentives to help American families help their children. These are much needed tools.
"From 1992 through 1998, tuition at a four year college increased by 234%. During that period, the average student loan has increased by 367%. In contrast, median household income rose only 82% during that period and the consumer price index rose only 74%.
"Our students -- our families -- need these resources to help them meet the costs and realize the opportunities of a quality education. I hope that my colleagues continue to recognize just how important they remain. The American people are counting on us.
"Now let me take a few minutes to describe the various provisions of this bill -- to provide an overview and to highlight some reasons why these measures are so important.
"As I have already mentioned, the bill increases the maximum education IRA contribution from $500 to $2,000. That increase is important on two levels. First, with the well-documented increase in education costs, it is essential that we provide American families with the resources to meet those costs.
"I have long argued that it is essential to change the savings habits of the American people, and there are few things more important than the education of their children. Not only will saving in this way increase our investment capital, it will increase Americans' education capital as well. Anything that thwarts either of these objectives is short-sighted.
"By using the tax code to encourage individual responsibility for paying for educational expenses, we all benefit. The expansion of the education IRA will result in greater opportunities for individuals to save for their children's education. Besides being too low to give parents the necessary resources to pay for the costs of education, the current $500 limit fails from another practical perspective.
"As we all know, any broker or bank that provides an IRA account faces assorted administrative costs for each account. To ensure that they can adequately cover their administrative costs, most brokers or banks impose a minimum account balance. In many cases, the minimum balance has been set well higher than $500. That reality of the marketplace has the effect of limiting the availability of the education IRA to American families.
"Another reality is that confronted by a $500 limit, many mutual fund companies find that it is not worth their while to spend money on marketing the education IRA. It is a fact of life that regardless of what we say and do in Congress, many families will only know about the benefits of an education IRA through the marketing efforts of their local mutual fund companies and banks. These businesses have been very successful in marketing IRAs with a higher contribution limit. If we want to maximize the involvement of American families in education IRAs, Mr. President, we need to ensure that the accounts make economic sense from the perspective of the companies offering them.
"Mr. President, the next major change that this bill makes to education IRAs is that it allows withdrawals for education expenses for elementary and secondary schools and for both private and public schools.
"As we recognized last year, it is a fundamental principle that a parent should have the right and the ability to make decisions about his or her child's education -- to decide basic questions such as how the child should be educated and where the child should attend school.
"In 1997, for example, when Congress passed a variety of provisions targeted to higher education, we made no distinction between private and public schools. We did not say, for instance, that an education IRA or a Hope scholarship would only be available if a student attended public school. We did not say that a student who attended the University of Maryland would receive a tax benefit and a student who attended George Washington University would receive nothing.
"This bill recognizes that just like for higher education, we should not establish a priority system where some elementary and secondary schools are favored over others. We should not forget that it is the taxpayer who funds the education IRA -- that it is the parent who puts his or her hard-earned money into the education IRA.
"Mr. President, it seems a matter of common sense, therefore, that the parent should be able to choose how to spend that money. And the parent should be able to choose where to send their children to school.
"Moreover, parents with students in elementary and secondary schools need our help to cope with the costs. It is simply not true that only rich kids attend private elementary or secondary schools. For instance, recent data from the National Catholic Education Association indicate that almost 70% of the families with children in Catholic schools have incomes below $35,000 and almost 90% of those families have incomes below $50,000. Why should these children not have access to these accounts?
"Mr. President, another provision in this bill makes state-sponsored prepaid tuition plans tax-free, not simply tax-deferred. This is a significant distinction, because it allows students to withdraw the savings that accumulate in their pre-paid tuition accounts without paying any tax at all. That means more money for children's education. It also means that parents have the incentive to put money away today and their children have the full benefit of that money, without any tax, tomorrow.
"As I have already mentioned, at least forty-three states have pre-paid tuition plans in effect. This means that most members of the Senate have parents and students back home who either benefit from this plan right now, or will benefit from this plan soon. I am pleased to point out that my home State of Delaware has acted in this area. Delaware parents can now save for college on a tax-deferred basis. If this bill becomes law, these Delaware families will be able to save for a child's college education on a tax-free basis.
"The prepaid provision also covers networks of private college plans. This will enable still more parents and students to save for college.
"Mr. President, the Finance Committee bill also extends tax-free treatment of employer-provided educational assistance for graduates and undergraduates through June 30, 2004.
"This particular program is a time-tested and widely used benefit for working students. Over one million workers across America receive tax-free employer provided education. This allows them to stay on the cutting edge of their careers. It benefits not only them, individually, but their employers and the economy as a whole. With the constant innovations and advancing technology of our society, it is vitally important that we continue this program.
"Mr. President, Finance Committee hearings demonstrated the crushing debt burden faced by students coming out of college. And I can tell you I hear about this debt burden from Delaware families. I am sure I am not alone. To this end, the Finance Committee restored the student loan interest deduction in the Taxpayer Relief Act of 1997. This bill goes another step further and simplifies and expands the deduction for more students.
"Mr. President, the Finance Committee bill does even more than address the costs of attending school. In response to concerns from Members on both sides of the aisle, the Finance Committee agreed on some measures to provide relief in the area of school construction.
"The first provision is directed at innovative financing for school districts. It expands the tax-exempt bond rules for public/private partnerships set up for the construction, renovation, or restoration of public school facilities in these districts. In general, it allows states to issue tax-exempt bonds equal to $10 per state resident.
Each state would be guaranteed a minimum allocation of at least $5 million of these tax-exempt bonds. In total, up to $600 million per year in new tax exempt bonds would be issued for these innovative school construction projects.
"This provision is important because it retains state and local flexibility. It does not impose a new bureaucracy on the states and it does not force the federal government to micro-manage school construction.
"The provision also is important because it promotes the use of public/private partnerships. Many high-growth school districts may be too poor or too overwhelmed to take on a school construction project themselves. With these bonds, those districts can partner with a private entity -- and still enjoy the benefits of tax-exempt financing.
"Mr. President, it is worth noting that there already is a significant federal subsidy for school construction. Under current law, states and localities can issue debt that is exempt from federal taxation. This benefit allows them to finance school construction by issuing long term bonds at a lower cost than they otherwise could.
"Moreover, the evidence shows that states and localities are taking advantage of this benefit. In the first six months of 1996, voters approved $13.3 billion in school bonds, an increase of more than $4 billion over the first six months of 1995. The bottom line is that many states and localities are doing their homework, passing bonds, building and renovating schools, and enjoying favorable treatment under the existing tax code. They are doing all this without significant federal involvement.
"I do not have to remind my colleagues that school construction has always been the province of state and local governments. President Clinton himself stated in 1994 that 'the construction and renovation of school facilities has traditionally been the responsibility of state and local governments financed primarily by local taxpayers.' In that respect, at least, I agree with the President.
"Mr. President, there is a second bond provision in this bill. That provision is designed to simplify the issuance of bonds for school construction. Under current law, arbitrage profits earned on investments unrelated to the purpose of the borrowing must be rebated to the Federal government. However, there is an exception -- generally referred to as the small issuer exception -- which allows governments to issue up to $5 million of bonds without being subject to the arbitrage rebate requirement. We recently increased this limit to $10 million for governments that issue at least $5 million of public school bonds during the year.
"The provision in the Finance Committee bill increases the small issuer exception to $15 million, provided that at least $10 million of the bonds are issued to finance public schools. This measure will assist localities in meeting school construction needs by simplifying their use of tax-exempt financing. At the same time, it will not create incentives to issue such debt earlier or in larger amounts than is necessary. It is a type of targeted provision that makes sense.
"Finally, Mr. President, we all know the tax code is too complex. As Chairman of the Finance Committee, simplification of the tax code is one of my top priorities. This Finance Committee bill provides for coordination between education IRAs, prepaid tuition plans, and the Hope Scholarship and Lifetime Learning credits. This provision will mean that parents will not lose the benefit of the Hope Scholarship and Lifetime Learning credits when they use an education IRA or a prepaid tuition plan.
"Mr. President, it is clear that the Finance Committee bill contains numerous important provisions for the American family. As I have said already, many of these are measures that the Senate passed last year.
"Anyone -- students or parents -- on the front line dealing with the costs of a quality education, must have been disappointed in 1997, in 1998, and in 1999, when the President failed to agree to give any student or parent all the tools that they needed. American families understand the need for these measures. America's families have now been waiting for several years. Let us not disappoint them any further. Let's not keep them waiting any longer. Let's move forward. Let's pass the Finance Committee bill now."
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