President Obama asked Congress to make permanent the American Opportunity Tax Credit (AOTC), which is set to expire at the end of the year. Flanked by a group of college students and their families at a Rose Garden press conference, Obama said that making higher education opportunities more affordable is an “economic imperative.” The initiative is part of the administration’s effort to dramatically boost the nation’s college graduation rates over the next several years.
The tax credit was originally part of the 2009 economic stimulus package to replace the Hope Scholarship credit for the tax years 2009 and 2010. It provides a tax credit of up to $2,500, which is bigger than the $1,800 Hope credit. In addition, it covers tuitions, fees, textbooks and other course materials for four years of college. The Hope Scholarship did not include fees or course materials and covered only the first two years of college.
“I’m calling on Congress to make this tax credit permanent so it’s worth up to $10,000 for four years of college because we’ve got to make sure that, in good times or bad, our families can invest in their children’s future and in the future of our country,” Obama said. He included a provision for the credit in his 2011 budget. If it is made permanent, the cost would be $58 billion over 10 years.
The press conference coincided with a report put out by the Treasury Department Wednesday morning that compares the two tax credits. Obama said that his administration has increased higher education tax credit expenditures by more than 90 percent, helping 12.5 million students and their families pay for college in 2009, an increase of 400,000 from 2008.
According to the report, the AOTC phases out at higher income levels: $160,000 to $180,000 for married couples filing jointly or $80,000 to $90,000 for single taxpayers versus the Hope credit’s $100,000 to $120,000 for joint filers and $50,000 to $60,000 for single filers. In addition, up to 40 percent or $1,000 per year is refundable, which allows low-income students who do not have a federal income tax liability to receive a benefit they would not get under the Hope credit, which is not refundable. Families whose AOTC exceeded their federal tax liability received $3.6 billion in refunds in 2009.
The AOTC provides the same benefit to community college students during their first two years as transfer students at a four-year college. Students who transfer into a four-year program to complete a bachelor’s degree can use the tax credit for their junior and senior years just like students who began their studies at a four-year institution. According to the Treasury Department, this benefit is especially valuable for students who attended community college as a more affordable option for their first four years of college.
The report stated that both graduates of both four-year and community colleges earn significantly higher wages. In 2009, the average college graduate earned salaries that were 63 percent higher than the average high school graduate and that the former are much less likely to be unemployed. The Hope credit, which was indexed for inflation, nonetheless did not keep up with rising tuition and fees, which have risen at a much higher rate than inflation and more than doubled between September 1999 and September 2009.
Obama used the press conference to highlight his administration’s efforts to improve education and increase access at all levels, “from the cradle to the classroom, from college through a career,” including Head Start reforms, the Race to the Top grant program and, most recently, community college upgrades. He also pointed to the differences between his party’s approach to education and the Republican Party’s, which he said would make it more difficult for families to send their children to college.
“They’ve proposed cutting back on education by 20 percent. That means reducing financial aid for 8 million students and leaving our community colleges without the resources they need to prepare our students for the jobs of the future,” Obama said. “Nothing would be more shortsighted. There’s an educational arms race taking place around the world right now. Cutting back on education would amount to unilateral disarmament. We can’t afford to do that. The nation that educates its children the best will be the nation that leads the global economy in the 21st century.”