On Thursday, the Senate approved, by a vote of 61-39, H.R 1586, providing $26 billion to states to continue funding Medicaid programs and to avoid teacher layoffs. House Speaker Nancy Pelosi announced that she would bring her chamber back into session next week to approve the bill. 

The bill includes revenue-raising provisions to offset the $26 billion cost, including the set of provisions that would clamp down on abuses of the foreign tax credit and which were originally part of the ill-fated "tax extenders" bill (H.R. 4213). (Some other revenue-raising provisions included in the bill are not ideal.)

The foreign tax credit ensures that a U.S. individual or corporation with income generated in a foreign country is not double-taxed on that foreign income. These taxpayers are allowed a credit against their U.S. taxes for any foreign taxes they pay on the foreign income. The problem is that many corporations have found ways to receive foreign tax credits in excess of what would be necessary to avoid double-taxation.

Predictably, business associations representing multinational corporations oppose the provisions to prevent these abuses. A previous report from CTJ addressed their arguments, one of which focused on the provisions' supposed retroactivity (which is addressed by the version of the provisions in H.R. 1586). Another of the multinational corporate community's arguments was that the practices in question are necessary to keep U.S. corporations abroad competitive with foreign companies, which seems like an admission that the foreign tax credit is being used for more than just preventing double-taxation.

In June, the Peter G. Peterson Institute (funded by, and named after, the billionaire who is ostensibly concerned with the federal budget imbalance) released a remarkable report opposing the provisions to prevent abuses of the foreign tax credit. Another CTJ report responds to the Peterson Institute's arguments.

Citizens for Tax Justice called uponPresident Obama this week to stand by his message of transparency by finally making "tax expenditure" performance reviews a regular part of the OMB's evaluations of government effectiveness.

Simply put, tax expenditures differ from the rest of the tax code in that they focus on encouraging a specific activity or rewarding a particular group of people, rather than on trying to improve the efficiency, simplicity, or fairness of our tax system.Since tax expenditures are usually enacted with primarily non-tax goals in mind (e.g. encouraging investment, encouraging research and development, encouraging home ownership, etc.) it is important that the government make an effort to gauge their effectiveness in achieving those goals.

But despite calls from the GAO, past Congresses, and outside experts in favor of subjecting tax expenditures to regular performance reviews, the most comprehensive performance measure currently in place, the OMB's Program Assessment Rating Tool (PART), continues to focus narrowly on only traditional spending programs.

Encouragingly, language in the President's recently released budget blueprint suggests that a more comprehensive approach for evaluating the government's performance will be used under the Obama Administration (see. pp.39).It's hard to see how anything approaching true comprehensiveness could ignore the hundreds of billions of dollars the government directs toward programs administered via the tax code.Hopefully, the brief language addressing performance reviews that was included in this blueprint is the first signal that an end is coming to the free-ride thus far enjoyed by tax expenditures.

Read the full statement from CTJ

On February 26, President Obama sent to Congress the blueprint for what could be one of the most progressive federal budgets in generations. The budget calls for national health care reform, expanded education funding, a program to reduce global warming, and several improvements in human needs programs. As a new report from Citizens for Tax Justice explains, it would make the tax code considerably more progressive, and close a number of egregious tax loopholes.

There is, however, a flaw in the budget proposal: It does not raise enough revenue to pay for public services. Instead, its net effect is to cut taxes dramatically.

Opponents of the President have attempted to argue that the budget proposal calls for tax increases that could sink the economy, but this complaint is plainly unfounded. President Bush and his allies in Congress were adamant that lower taxes would lead to an explosion of prosperity, and they enacted tax cuts in 2001, 2002, 2003, 2004 and 2006. Some allies of the former President argue that Congress is now insufficiently focused on tax cuts, but this view seems bizarre and incredible given the sad economic facts all around us.

Indeed, one might reasonably conclude that we could safely allow most of the Bush tax cuts to expire at the end of 2010, as they are scheduled to under current law, without any concern about how this will impact the economy. But President Obama actually proposes to keep most of the Bush tax cuts. Obama's largest proposed tax cut is to re-enact 80 percent of the Bush tax cuts that are scheduled to expire at the end of 2010. Most of this reflects re-enacting the Bush income tax cuts for married couples with incomes below $250,000 and others with incomes below $200,000 (or put another way, for about 98 percent of taxpayers), and permanently reducing the Alternative Minimum Tax (AMT). In addition, Obama proposes to re-enact close to half of the Bush estate tax cut.

On top of re-enacting most of the Bush tax cuts, the Obama budget includes a number of additional tax cuts for families and individuals. (These would be extensions of temporary tax cuts included in the recently passed stimulus law.) It also proposes some questionable business tax cuts.

Partially offsetting its tax-cut proposals, the Obama budget proposes some significant revenue-raising provisions. These include a cap-and-trade program to reduce carbon emissions, a limit on the benefits of itemized deductions for high-bracket taxpayers, and a number of corporate and high-income loophole-closing measures.

Read the Report

A new report from Citizens for Tax Justice compares the tax cuts proposed as economic stimulus by the House Democrats to the tax cuts proposed by their Republican counterparts. The report includes both national and state-by-state figures showing the average tax cut and the share of total tax cuts that would be received by taxpayers in various income groups under the different proposals.

The report finds that the Democrats' proposal (H.R. 598) includes some tax cuts that are far more targeted to low- and middle-income people than any of the tax cuts included in the Republican alternatives. This is largely because H.R. 598 includes a new refundable credit (the Making Work Pay Credit) and expands two others (the Earned Income Tax Credit and the Child Tax Credit) while the Republican alternatives do not. Working people who pay federal payroll taxes but do not earn enough to owe federal income taxes will only benefit from an income tax cut if it takes the form of a refundable credit. Many economists have argued that any effective stimulus policy would have to boost demand for goods and services by causing immediate spending -- and one way to do that is to put money in the hands of low- and middle-income people who are more likely than wealthy taxpayers to spend it quickly.

The House of Representatives is expected to vote this week on the Democratic proposal, H.R. 598. Many of the provisions of this bill have wide support from progressive advocates. The Coalition on Human Needs is distributing a sign-on letter for organizations in support of the expansion in the Child Tax Credit. If you are authorized to sign on behalf on an organization in support of this provision, click here for more information.

Read the CTJ Report

On Thursday, House Ways and Means Committee Chairman Charlie Rangel (D-NY) released the outlines of a $275 billion tax cut package to be included with a larger stimulus bill that Democratic leaders hope to enact by President's Day. In many ways it is an improvement over the proposal initially floated by the Obama transition team, but it also keeps many of Obama's ill-advised tax cuts for business that will have little or no stimulative effect on the economy.

Most economists believe that the current economic downturn is largely the result of a collapse in demand for goods and services, and that direct government spending can boost demand and prevent the recession from becoming more severe and destructive. Tax cuts are less effective because it's difficult to ensure that they will result in the sort of immediate spending needed to boost demand quickly. But if tax cuts can at least be targeted to those people who are likely to spend the extra money right away (like low-income families), then they could have a decent chance of accomplishing the goal of stimulating the economy.

More Progressive Tax Cuts for Families

Last week, Citizens for Tax Justice released a report that showed how some of Obama's proposed tax cuts would be targeted to those who would likely spend the money right away (thus immediately pumping the money into the economy) while others were more likely to be ineffective giveaways to business. Obama's proposed Making Work Pay Credit would reach people at lower income levels, but it would not be particularly targeted towards the bottom half of the income ladder. (The poorest 60 percent of taxpayers would only get 48 percent of the benefits while the richest 20 percent would get 25 percent of the benefits.) A proposal to increase the availability of the refundable portion of the $1,000 Child Tax Credit looked more promising because nearly all of the benefits would go to the poorest 60 percent.

The Ways and Means Committee proposal improves on Obama's tax cuts for individuals. For example, the improvement in the Child Tax Credit (CTC) would be even more progressive. Under current law, some working families who pay federal payroll taxes but who do not earn enough to owe federal income taxes are actually too poor to benefit from the CTC. That's because people with no income tax liability do not benefit from a tax credit unless it is refundable, and the refundable portion of the CTC is limited to 15 percent of earnings above $12,550 in 2009. The Ways and Means Committee proposal would remove that earnings threshold so that the refundable portion of the CTC is equal to 15 percent of all earnings (with the maximum credit limit unchanged at $1,000 per child).

The refundable Making Work Pay Credit, which Obama proposed during his campaign and which would generally offer working people $500 (or $1,000 for a couple if both spouses work), is also included. A new addition to the package is an improvement in the Earned Income Tax Credit (EITC). It is unclear at this time how extensive the change in the EITC will be. (It may be similar to the EITC expansion Obama proposed during his campaign.) But it's quite clear that expanding the EITC is a promising way to put money in the hands of families who have probably cut back on purchasing all sorts of needed goods and services and who will therefore spend that money quickly.

Tax Cuts for Business: One Bad Idea Dropped, Several Others Included

The Ways and Means proposal does not include Obama's proposed refundable $3,000 tax credit for businesses that create jobs, which was roundly criticized as unworkable. Democrats in the House and Senate are said to have been doubtful that the credit could possibly be implemented in a way that did not result in a huge tax giveaway for companies that were merely hiring people they would hire anyway.

Unfortunately, many other business tax cuts in Obama's proposal that CTJ and others criticized are included in the Ways and Means package. Earlier attempts at using bonus depreciation to boost the economy have proven to be ineffective, but lawmakers apparently insist on this giveaway to business-owners. A 2006 Federal Reserve study reached a similar conclusion to our own findings, finding that previous versions of this tax break had "only a very limited impact... on investment spending, if any." Worse, the proposal would allow businesses to use their losses to reduce taxes they already paid going back five years (the current limit is two years). As Dean Baker explains, this tax cut must have even less stimulative effect than other business tax cuts because it does nothing to change the incentives of business-owners or investors going forward. The net operating loss carryback provision simply hands money to businesses without requiring any sort of investment (or anything) in return.

House Democratic Proposal Would Rescind the Infamous "Wells Fargo Ruling"

Another provision in the package would reverse IRS Notice 2008-83, also called the "Wells Fargo ruling" after its largest beneficiary. In October, the IRS issued this two-page notice declaring, with no authorization from Congress, that banks could ignore a section of the tax code enacted under President Reagan to prevent abusive tax shelters. In December, over a hundred organizations signed a letter to the House and Senate asking them to rescind the Wells Fargo ruling. That call is now being answered.

The Ways and Means package contains provisions addressing many other needs, including a partially refundable credit for higher education, increased availability of bonds for state and local government, energy tax incentives, child support funding and many others.

On Friday, President Bush signed into law the financial rescue plan that had been approved by the House of Representatives just hours earlier. The House had rejected a similar financial rescue bill on Monday, but on Wednesday the Senate passed a version that was loaded with tax breaks in order to woo more votes in the House. The Senate bill combined the financial rescue plan with legislation to extend several temporary tax breaks (often called tax "extenders") as well as a measure to keep the Alternative Minimum Tax (AMT) from expanding to reach more taxpayers. The sweeteners added by the Senate were apparently enough to win over a majority of members in the House, who approved the bill on Friday and sent it on to the White House for Bush's signature.

The political dynamic was somewhat confusing throughout the debate over the bill. The financial rescue plan and the tax legislation were both bills that were opposed by the House, largely because of their costs. Counter-intuitively, the compromise was to pass both as one bill.

It almost sounded like a joke: What is bipartisanship? It's what happens when some lawmakers want new spending we cannot afford while other lawmakers want new tax cuts we cannot afford, and in the end Congress compromises by doing both and paying for none of it.

The Financial Rescue Plan

In all fairness, there are conservatives and progressives who supported and opposed the bailout legislation. Some argue that it is truly necessary to keep lines of credit open, and that its cost will be less than the widely-cited $700 billion figure. And there are surely some provisions among the tax cuts that we would all support. (One that comes to mind would make the child tax credit more accessible for low-income families.)

In theory, the government will eventually sell the assets it buys from financial institutions and recoup much of the costs (and it's possible, though unlikely, that the taxpayers could actually profit). And if the costs are not recouped after five years, the President is to propose legislation to Congress to recoup the money from the financial sector. (What shape this would take is unclear, but House Speaker Nancy Pelosi and others had earlier discussed a fee on financial institutions after the five-year period.) As discussed in last week's Digest article, Congressional leaders did win some concessions that improved the President's initial proposal. One involves limiting the deductibility of compensation to highly paid executives in the entities participating in the bailout. (However, some astute observers have pointed out that serious loopholes in that rule remain, including the fact that stock options are apparently not covered).

AMT Relief

The tax cut package has had a long and tortuous history. Generally speaking, the Democrats in the House have opposed passage of any type of tax cut legislation that will result in an increase in the budget deficit. This is entirely reasonable, especially given the massive deficits racked up throughout the Bush years, and in practice this means that any tax cuts must be accompanied by revenue-raising provisions or cuts in spending. In the Senate however, a minority of Republican Senators can block any legislation that has any sort of revenue-raising provision, and the result has been a long feud between the two chambers over whether to pay for AMT relief and other tax breaks.

The AMT is a backstop tax designed to ensure that well-off people pay some minimum tax no matter how proficient they are at finding loopholes to reduce or wipe out their tax liability. Tax liability is calculated under the regular rules and the AMT rules, and you only have to pay the AMT if your AMT liability exceeds your regular income tax liability.

For most middle-class taxpayers, this is usually not an issue. But the Bush administration chose to lower the regular income tax without making any permanent change to the AMT, so of course that means that more people are going have to pay the AMT. Another problem, albeit a less important one, is that inflation is eating away at the value of the exemptions that keep most of us from paying the AMT. The Clinton administration increased these exemptions, but no permanent increase in those exemptions has been made during the Bush years.

The adjustment in the AMT that was included in the bill will increase these exemptions so that most of us will continue to be unaffected by the AMT.

Earlier this year, the House approved AMT relief and the tax exenders, but included provisions in each that would offset the cost by closing tax loopholes. Republicans in the Senate objected to the offsets and vowed to block these bills.

More recently, the House actually relented somewhat and passed a bill that would provide AMT relief without paying for it, increasing the deficit by over $60 billion. Unfortunately, this was not enough for the Senate, which insisted on increasing the deficit even more by including the tax extenders without offsetting all of their costs.

Tax Extenders

The Senate had been insisting on the passage of a bill combining the AMT relief with the "tax extenders." The extenders include all sorts of handouts that either subsidize businesses that don't need subsidies (like the research credit), cut taxes in ways that are not particularly progressive (like the deduction for state sales taxes and the deduction for tuition which really only benefits fairly well-off families), or just offer very trivial benefits (like the provision allowing teachers to deduct $250 in classroom expenses, which yields a benefit of about $60 for teachers lucky enough to be in the 25 percent bracket).

The legislation includes one very wise provision to offset $25 billion of the cost by shutting down offshore tax schemes that help the already highly compensated avoid taxes on their deferred compensation. Generally, when a company pays into a deferred compensation plan for an employee, if that plan is "non-qualified" (meaning it exceeds certain limits that the super-compensated don't want to deal with) the company cannot take a tax deduction for the payment until it is actually received as income in later years by the employee. But some have figured out how to have their deferred compensation routed through an offshore entity in some tax haven so that there is no tax paid to the U.S. government or any other government, so not being able to deduct the payment is not an issue. This provision would make the deferred compensation in this situation immediately taxable to the individual, so that there would no longer be an incentive to use this scheme.

The passage of this reform is a positive development, but this still leaves a total $110 billion increase in the deficit as a result of the tax cuts.

As Isaiah Poole at the Campaign for America's Future observed this week,

"Whatever the merits of these tax measures -- and you can be sure that the merits of many of these provisions are highly questionable and exist only at the behest of lobbyists or lawmakers pandering for votes -- they certainly make a mockery of all the protestations of not turning the economic rescue effort into a "Christmas tree" of special-interest provisions. As it turns out, the "Christmas tree" concern only applies to provisions that would, for example, fund community organizations that have a track record of helping homeowners avoid foreclosure. You know, things that would help ordinary people directly affected by the financial crisis."

The Senate is poised to add a hundred billion dollars to the federal budget deficit by enacting more tax cuts. Democratic Senate leaders have stated that they believe new tax cuts should be paid for, but many Republicans insist on blocking any bill that increases anyone's tax bill, even if the legislation merely closes an egregious tax loophole. Their blocking tactics can succeed in the Senate, where a minority of 41 lawmakers can block most legislation. The House of Representatives, which is governed by the majority rule principle recognized by most modern democracies but not in the U.S. Senate, has passed legislation that includes most of these tax cuts but also includes revenue-raising provisions to offset their costs.

Senate leaders have apparently made a deal that would allow them to enact relief from the Alternative Minimum Tax (AMT) for a year and extensions of several temporary tax cuts targeted to various special interests (often called the tax extenders) at a cost of around $130 billion, and including a revenue-raising provision that would offset just $25 billion of that cost. The Senate is scheduled to take several votes on Tuesday, including one to provide AMT relief with the costs fully offset by revenue-raising provisions, but this is expected to fail because a minority of Senators will block it. The Senate is then expected to move on to approve AMT relief that is not paid for.

Important Revenue-Raising Provision Would Crack Down on Tax Avoidance Through Deferred Compensation

The revenue-raiser is certainly a worthy provision. It would shut down offshore tax schemes that help the already highly compensated avoid taxes on their deferred compensation. Generally, when a company pays into a deferred compensation plan for an employee, if that plan is "non-qualified" (meaning it exceeds certain limits that the super-compensated don't want to deal with) the company cannot take a tax deduction for the payment until it is actually received as income in later years by the employee. But some have figured out how to have their deferred compensation routed through an offshore entity in some tax haven so that there is no tax paid to the U.S. government or any other government, so not being able to deduct the payment is not an issue. This provision would make the deferred compensation in this situation immediately taxable to the individual, so that there would no longer be an incentive to use this scheme.

But this provision, worthy as it is, pays for less than a fifth of the total cost of the tax cuts included in the bill. The Bush administration and its allies in Congress have promoted the bizarre idea that any tax cut that is enacted for one year can be extended indefinitely without offsetting the cost because such an extension is merely "preventing a tax increase."

Republican Leaders Are Shocked -- Shocked I Tell You! -- that the AMT Will Affect More Taxpayers

This is most ludicrous in the case of AMT relief. The AMT is basically a backstop tax geared towards getting well-off people to pay some minimum tax no matter how proficient they are at finding tax loopholes to reduce or wipe out their tax liability. Tax liability is calculated under the regular rules and the AMT rules, and you only have to pay the AMT if your AMT liability exceeds your regular income tax liability. For most people who are not rich, this is usually not an issue. But the Bush administration chose to lower the regular income tax without making any permanent change to the AMT, so of course that means that more people are going have to pay the AMT. Another problem, albeit a less important one, is that inflation is eating away at the value of the exemptions that keep most of us from paying the AMT. The Clinton administration increased these exemptions, but no permanent increase in those exemptions has been made during the Bush years.

The AMT will affect over 20 million people this year if Congress does not act. In recent years Congress has passed several temporary "patches" to the AMT to prevent this from happening, and this year's patch will cost over $60 billion.

The Bush administration chose to not include a permanent fix to the AMT in its tax plan in 2001 because that would have increased the cost of the proposal. During George W. Bush's first presidential campaign in 2000, CTJ's initial analysis of the governor's tax proposal assumed that it did include a fix to the AMT, but Bush's advisers insisted that this was not true. Of course, we have ended up paying for AMT relief anyway, the only difference is that now President Bush and his allies can pretend that the need for AMT relief was entirely unexpected and that this somehow means it can be deficit-financed.

The Center on Budget and Policy Priorities helps us out with a little history lesson. This is what Senate Finance Committee ranking Republican Charles Grassley said in January of last year. It typifies what the President and his allies have been saying about the AMT:

"It's ridiculous to rely on revenue that was never supposed to be collected in the first place... It's unfair to raise taxes to repeal something with serious unintended consequences like the AMT."

Compare this to what Senator Grassley said when the first Bush tax cut bill was being debated:

"Roughly one in seven taxpayers will come under the shadow of the Alternative Minimum Tax by the end of the decade... That figure will significantly be higher if President Bush's tax plan is adopted, and that is according to the Joint Tax Committee of the Congress."

The Tax Extenders and Other Tax Cuts -- Some Bad, Some Good

The extenders include all sorts of handouts that either subsidize businesses that don't need subsidies (like the research credit), cut taxes in ways that are not particularly progressive (like the deduction for state sales taxes and the deduction for tuition which really only benefits fairly well-off families), or just offer very trivial benefits (like the provision allowing teachers to deduct $250 in classroom expenses, which yields a benefit of about $60 for teachers lucky enough to be in the 25 percent bracket). CTJ has explained in detail why Congress would be better off ending the ritual of passing "extenders" and should simply let these provisions expire.

There are surely some good provisions in the bill as well. A portion of the tax cuts (about six percent) are targeted towards disaster relief. One particularly progressive provision would make it easier for low-income people to receive the refundable portion of the child credit. Over a thousand organizations from all over the country supported this provision, including CTJ. This improvement in the child credit accounts for only around 2 percent of the cost of the entire bill, and we certainly wish that progressive provisions like this made up a much larger proportion of the tax legislation coming out of Congress lately.

Energy Tax Provisions

The Senate will also vote on a package of extensions and modifications of energy tax breaks on Tuesday. This package at least includes revenue-raising provisions to offset its $17 billion cost. One would limit -- but not eliminate -- the use of the section 199 deduction for manufacturing by oil and gas companies. (Apparently many Senators still believe that pumping oil or gas is "manufacturing" and scaled back an earlier proposal that would completely stop the energy companies from using the manufacturing deduction). Another requires securities brokers to report the "basis" of securities they buy and sell, which will help prevent evasion of capital gains taxes.

While some environmental organizations are applauding this package of incentives for everything from wind and solar power to electric cars, other green groups have thrown cold water on the party by criticizing the compromises that were made leading to passage.

"Unfortunately," wrote the president of the National Wildlife Federation in a letter to the Senate, "by including sweeping new federal subsidies for oil shale, tar sands and liquid coal refining, the bill no longer represents the kind of progress America needs to confront global warming."

Several members of Congress are considering how to improve tax provisions that are designed to help people obtain postsecondary education and training, and recent reports on this topic has been issued by the Center on Budget and Policy Priorities and the Tax Policy Center. The Senate Finance Committee is expected to mark up legislation on education tax benefits after the Memorial Day recess. Currently taxpayers paying college or training expenses, including those who are not itemizers, can deduct up to $2,000 ($4,000 for married couples) for tuition and fees. Also, the Hope credit is available at a maximum of $1,650 per student this year (indexed for inflation) and the Lifetime Learning Credit (LLC) is available at a maximum of $2,000 per family. There are also several tax-preferred savings vehicles for education (Coverdell Education Savings, Accounts, Qualified Tuition Programs, and education savings bonds).

Lack of Progressivity

There are several problems with these tax benefits. For one, they're not very progressive. This is particularly troubling because we usually think the whole point of these tax breaks is to encourage people to obtain postsecondary education who otherwise would not, and wealthier families will typically send their children to college regardless of what tax benefits are available. Lower-income families, who are more likely to respond to subsidies for education, are not well-targeted by the tax benefits.

The tuition and fees deduction and the Hope credit and LLC are unavailable for people without income tax liability, so a sensible reform would be to provide a refundable credit. Most families of modest means pay federal payroll taxes but are not wealthy enough to owe federal income taxes (a family of four with an income of $42,000 won't pay federal income taxes in 2007). For these families, only a credit that is refundable (that results in negative income tax liability and a check from the IRS) can help.

The maximum LLC cannot be used unless a family spends at least $10,000 on education (because it credits 20% of the first $10,000 in expenses, up to a maximum credit of $2,000). One speaker at a forum on this topic hosted by the Tax Policy Center on Wednesday pointed out that 90 percent of students have expenses below $10,000. The tuition and fees deduction is regressive because its value depends on the tax rate the taxpayer is subject to. A family subject to a 35% tax rate can deduct $4,000 and reduce their taxes by $1,400, but a family subject to the 10% rate could deduct $4,000 and reduce their taxes by only $400.

Complexity

Another problem is that many families may find the rules governing these tax breaks too confusing and may not even realize that these benefits are available. A taxpayer must choose to use either the tuition and fees deduction, the Hope credit, or the LLC. A GAO report in 2005 found that over a fourth of taxpayers eligible don't take advantage of any of these tax benefits, and those who do use them often don't use the most advantageous tax break for their situation.

New Proposals Could Solve Some of These Problems

A bill sponsored by Rahm Emanuel (D-IL), Dave Camp (R-MI) and others in the House and Evan Bayh (D-IN) in the Senate would combine the three main tax benefits into one credit of up to $3,000 for postsecondary education expenses, including a much broader range of expenses (such as room and board, books, supplies and transportation). These expenses other than tuition often make up the bulk of costs for students of modest incomes in community colleges. The credit would cover 50% of the first $3,000 and 30% of the next $5,000 of these expenses. Up to half of the credit calculated based on expenses would be refundable, adding to the progressivity of the proposal.

Other proposals are being discussed, including one from Senator Charles Schumer (D-NY) for a simplified credit that would not be refundable, and which the Finance Committee is likely to consider. Advocates for making postsecondary education more accessible are hopeful that the Finance Committee can be pushed to move in the direction of the bill being sponsored by Emanuel, Camp and Bayh.