A bipartisan group of senators on the Senate Finance Committee this week reintroduced the Tax-Free Pell Grant Act, a top priority for the American Association of Community Colleges (AACC).
Sens. Sheldon Whitehouse (D-Rhode Island), Charles Grassley, (R-Iowa), Tom Tillis (R-North Carolina) and Ron Wyden (D-Oregon) on Tuesday introduced the legislation, which is identical to the bipartisan House measure introduced last month.
AACC has long supported Tax-Free Pell Grant legislation and rallied campuses behind it. The bill largely only affects community college students because the tax code is biased against low-income students attending low-cost institutions.
The measure would shield community college students from paying taxes on portions of their Pell Grant that go toward books and living expenses and enable hundreds of thousands of them to qualify for the $2,500 American Opportunity Tax Credit (AOTC). (Ironically, under current law, families earning $160,000 and paying $40,000 or more in tuition per year can receive the $2,500 credit, while a community college Pell Grant recipient largely gets nothing.)
“The legislation is of particular benefit to students attending low-tuition, locally-focused institutions that help individuals learn the skills needed to earn family-sustaining wages — in other words, America’s community colleges,” AACC President and CEO Walter Bumphus said in a press release from the sponsoring lawmakers’ offices.
Despite the incredible pressures on the tax bill’s crafters to reject new provisions that would cost the Treasury revenue and limit the measure to extending existing tax preferences, AACC members have created substantial support for the measure. The association hopes that our champions will succeed in getting it included in the mammoth tax bill that the Republican majority is committed to enacting.
The next critical step in the process for this legislation is the markup of massive tax legislation in the budget reconciliation bill. That markup will occur soon. The House will go first.
What you can do
Action is still needed on this legislation with members on the tax-writing committees, (House Ways and Means and Senate Finance), particularly among Republicans. If you haven’t done so yet, we encourage AACC members to make these contacts.
Reasons why members should support the legislation’s inclusion in the reconciliation tax bill include:
- Financially needy students should not have to pay taxes on targeted grant funds that, by law, must be used for education and related expenses. This undermines the intent of the Pell Grant program and disadvantages students who attend low-cost community colleges. Congress should incentivize, not discourage, students to attend community colleges.
- The legislation will simplify the tax code and make it easier for low-income students to file their taxes efficiently. A series of government reports have shown that the complexity of the tax code in these areas has resulted in substantial sub-optimal filings. In this respect, the Tax-Free Pell Grant Act is a tax simplification measure.
- Low-income community college students should qualify for the $2,500 AOTC. Because of the complicated way that the tax code and AOTC law are written, low-income community college Pell Grant recipients generally do not qualify for the AOTC, while more affluent students who attend more expensive colleges do. This is illogical and works against the spirit of the AOTC.
- The cost of the Tax-Free Pell Grant Act is extremely small in relation to the overall size of the pending tax bill.
Please contact AACC if you have any questions about how best to communicate with your federal legislators on this key issue.
