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In Last Minute Tax Deal, Congress Leaves Education in Jeopardy
Congress rang in the new year by passing a bill establishing new tax rates for the wealthiest Americans and preserving current rates, deductions, and credits for most working families. President Obama signed the bill into law on Jan. 2, but the deal only postpones sequestration for two months, a deadline by which lawmakers must make major decisions on spending cuts and entitlement reform. The deal did nothing to take drastic cuts in education — or other critical services for low-income families and those of moderate means — off the table. Nor did it do anything to raise the debt ceiling.
The compromise bill — passed by the Senate in the early morning of Jan. 1, and by the House much later that night — makes Bush-era tax rates permanent for individuals making under $400,000 and married couples making under $450,000, raises top capital gains and dividends tax rates from 15 to 20 percent, and extends unemployment benefits for one year, through Dec. 31. It also allows the payroll tax holiday to expire, meaning everyone will see an increase in their payroll taxes this year. On the education front, the American Opportunity Tax Credit, an annual credit of $2,500 per student for low- and middle-income families to help pay for college expenses, was extended for five years; and provisions for Coverdell education savings accounts, which allow families to save tax-free for education expenses, were made permanent.
Postponing sequestration means a couple more months of sharp debate over the federal role lie ahead, as the government inches closer to the federal debt limit every day. Sequestration was a mechanism written into the Budget Control Act of 2011 to motivate Congress to address the growing federal debt within a specified time frame. The Act raised the debt ceiling, or the amount the federal government may borrow to pay its expenses, but it also required Congress to find spending cuts within one year or face devastating, across-the-board budget cuts known as sequestration. Now, the federal government faces hitting the debt ceiling once again, and still has not identified the cost savings needed for the last increase of the debt ceiling, let alone this one. Had Congress not delayed sequestration on New Year’s Day, the across-the-board cuts would have kicked in this week.
Although important, the new bill only raises an estimated $620 billion in new revenue over 10 years, while the president and Congress both said they needed more than $1 trillion to address the nation’s fiscal woes. And, when compared with the $1.5 trillion in spending cuts that have been enacted over the past year, it is clear that Congress has much more to do on the revenue side of the equation.
The 113th Congress was sworn in Thursday, Jan. 3. To avert sequestration, it is imperative that lawmakers focus not just on how to immediately balance the national check book, but also on how to wisely invest in the nation’s future. In other words, lawmakers must protect funding for K-12 education programs and college scholarships for low-income students. Our future depends on it.
— Nicole Tortoriello