Fiscal Cliff Deal Spares Higher Education Research Funding, Tuition Tax Credit

The Tuition Tax Hike We Barely Missed

The final agreement to avoid certain tax increases and spending cuts passed both houses of Congress late Tuesday, staving off several measures that would have raised the tax bill for college students and potentially deprived universities of critical research funding.

The deal to avert the so-called "fiscal cliff" spared the American Opportunity Tax Credit and extended the measure for five years, EdWeek reports. Born of the 2009 stimulus bill, the American Opportunity Tax Credit allows middle- and low-income families a tax deduction of up to $2,500 a year in education expenses for four years. It can trim the overall cost of a college degree by $10,000.

The fiscal cliff agreement also makes permanent the Bush-era tax cuts for couples earning under $450,000 and individuals earning under $400,000.

"Under this law, more than 98 percent of Americans and 97 percent of small businesses will not see their income taxes go up. Millions of families will continue to receive tax credits to help raise their kids and send them to college," President Obama said Tuesday night after the House voted on the fiscal cliff deal.

Without the bill's passage, an 8.2 percent across-the-board cut to domestic discretionary programs and a 7.6 percent cut for mandatory spending programs would have immediately affected several funding streams critical to universities, including sources of scholarship programs and research grants. Affected programs included the National Institutes of Health, the National Science Foundation and Department of Defense aid to veterans to attend college. Those sequestration cuts are now delayed for two months. (Pell Grants were not affected because they were not subject to sequestration.)

Even with the delay in sequestration, education funding still faces cuts in 2013. The federal government's continuing budget resolution comes due at the end of March, and Republicans in Congress are demanding budget cuts in exchange for any raise in the debt ceiling. Federal research money would be the most likely casualty of future budget cuts, along with changes in who is eligible for financial aid programs.

But the president warned against any further spending reductions Tuesday night after the fiscal cliff bill passed, saying, "We can't simply cut our way to prosperity," and referring specifically to higher education.

"We can't keep cutting things like basic research and new technology and still expect to succeed in a 21st century economy," Obama said. "So we're going to have to continue to move forward in deficit reduction, but we have to do it in a balanced way, making sure that we are growing even as we get a handle on our spending."

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