||Tax Credits of Dubious Value
- "The Hope [credit] squanders a substantial sum of federal tax resources"
while failing to deliver significant benefits to individuals, colleges, states
or the federal government
- To begin with, the credits are of little value to families with
little income. While credits, which reduce taxes dollar for dollar,
are better than deductions, whose value varies with the taxpayer's tax bracket,
these credits are not refundable, so families with modest tax liabilities
are not likely to get the full benefit.
- In addition, they are applicable only to tuition "and related expenses."
Thus students who attend community colleges, where tuition is low, also don't
get the full benefit, but they still have expenses such as transportation
and living costs.
- Those are public policy issues, however, and may well be dismissed
by middle-class families as "not our problem."
- Does the subsidy make the product more "affordable," or does it simply
enable buyers to pay a higher price? If it is the latter, the benefits of
the subsidy flow not to the buyer (the student and the student's family,
in the case of tuition credits) but to the seller (the college).
- The effects are hard to sort out, but remember that when interest
in a no-deduction flat tax was at its zenith a few years ago, home builders
complained that elimination of the mortgage-interest deduction would cause
home prices to fall. This suggests that the benefit, in that case at least,
is to the sellers, who can ask a higher price because they have both real
estate and tax benefits to sell.
- The Hope credit creates an incentive to raise tuition and lower
- Since this process is likely to take some time, today's students
and those attending college in the next few years probably will realize greater
benefit than those in the more distant future when the credit is more fully
integrated into aid and tuition.