Education Incentives and Tax Reform

Comments for the Record

United States Senate

Committee on Finance

Education Incentives and Tax Reform

Wednesday, July 25, 2012, 10:00 AM

215 Dirksen Senate Office Building

 

By Michael Bindner

Center for Fiscal Equity

 

 
Chairman Baucus and Minority Leader Hatch, thank you for the opportunity to address this topic. As always, our comments will be in the context of our four part proposal for tax reform, which is as follows:

 

• A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.
• Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year.
• Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
• A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support, health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.

 

To a large extent, our comments will mirror those of two weeks ago on how tax reform affects the ability of young people to realize the American Dream, since it is largely through education that this occurs.

 

Our proposal shifts education tax incentives from individuals to employers and from the personal income tax to a VAT-like Net Business Receipts Tax that every employer of a certain size pays, with some firms who now employee consultants adding them as statute employees. The NBRT would both fund public collegiate and vocational education and allow offsets for providing tuition assistance to employees for pursuing education after grade 14 (until that point, education would be free).

 

We propose that tuition assistance take two forms – the creditable portion which need not be paid back and a loan portion that would be paid back with a service requirement, with the federal government offering student loans only when the employment situation does not work out or the degree is not completed. Involving employers more closely after grade 14 allows for the negotiation of volume discounts – which is a hallmark of the success of such programs as the H-1B Technical Skills Training Grant and the more recent community college initiative. Such employers might also provide housing or pay housing and living expenses through some kind of stipend.

 

Our proposals go beyond incentives for higher education to other tax incentives to help people obtain adult education, either through employers or through an employer-based tax payment or charitable contribution in lieu of taxes.

 

Some young people have learning deficits. We propose that instead of placing them in job training right away, we first pay them to achieve literacy at the tenth grade level, with either vocational or college prep/community college after that. In all such cases, students who have families or are living outside the home should be paid a minimum wage for their study time, with the wage funded either by an employee-sponsor or directly by the taxpayer through the training provider, with the funding coming from the NBRT. This training can be arranged either by local government, a local public or private school system or by employers directly as an offset to the NBRT levy. This would replace Temporary Aid to Needy Families. Program providers would also receive a subsidy for providing insurance to participants through the policy under which their employees are covered, replacing Medicaid for needy families.

 

The other problem that young families face is low wages. While there are certainly tax credits that make having children more affordable, they are not adequate to meet expenses. We propose increasing the Child Tax Credit to $6000 per year (federal share) and making it refundable. This would consolidate assistance now provided by the current CTC, the Earned Income Tax Credit, the exemption for children, the Supplemental Nutrition Assistance Program, the Mortgage Interest Deduction, and the Property Tax Deduction.

Note again that this proposal will likely result in a higher birthrate, as well as lower wages for non-parents or for parents whose children have moved away. As such, this provision will also decrease the use of both abortion and contraception. If support for it is not considered an essential vote for scoring the by National Right to Life Committee, then that scoring is hopelessly partisan, as this particular proposal will prevent more abortions than any criminal sanction ever would (the Guttmacher Institute estimates that 72% of abortions are for economic reasons, including the financial well-being of teen parents).

 

Thank you for the opportunity to address the committee. We are, of course, available for direct testimony or to answer questions by members and staff.