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Ronald Reagan Presidential Library
Digital Library Collections
This is a PDF of a folder from our textual collections.
Collection: Barr, William: Files
Folder Title: Tuition Tax Credit Bill (6)
Box: 12
To see more digitized collections visit:
https://reaganlibrary.gov/archives/digital-library
To see all Ronald Reagan Presidential Library inventories visit:
https://reaganlibrary.gov/document-colection
Contact a reference archivist at: [email protected]
Citation Guidelines: https://reaganlibrary.gov/citing
National Archives Catalogue: https://catalog.archives.gov/
DRAFT
Letter to the President of the Senate and the Speaker of the
House Transmitting Proposed Legislation.
Dear Mr. President: (Mr. Speaker:)
I am herewith transmitting to the Senate (House of
Representatives) proposed legislation entitled "The Educational
Opportunity and Equity Act of 1982." This bill would provide for
increased diversity in educational opportunity by providing tax
relief for parents who choose to send their children to nonpublic
schools.
Diversity in educational opportunity has been one of the
great strengths of our nation. It is a foundation of our
pluralistic society and essential to a nation which places a high
value on individual freedom.
We are justly proud of our public schools, which now offer a
free education through the primary and secondary school levels to
all American children willing to take advantage of it. At the
same time, we must remember the important role that has been
played since the beginning of our nation by the diverse nonpublic
schools which also offer an education to American children. Now,
as they did prior to the establishment of our public school
system, parents cherish their ability to choose from a wide range
of educational opportunities for their children. It is of great
importance to the continued vitality of our society that parents
have a meaningful choice between public education and the many
forms of private education that are available.
It is also important that there be innovation and
experimentation in education. The existence of many private, as
well as public schools, assures that new and possibly more
effective teaching approaches will not go untested. It is also
important that the differing needs and demands of students and
their parents be met. Parents who, for whatever reason, are not
satisfied by the education available in their local public
schools should be able to seek an education better suited to
their children elsewhere. Furthermore, the existence of a viable
private alternative should maintain a healthy pressure on public
education authorities to maintain educational standards and meet
student needs.
As we are all aware, the cost of education, both public and
private, has risen dramatically in recent years. We all bear the
burden of the rising costs of public education through state and
local taxation, directly or indirectly. But those parents who
wish their children to attend nonpublic schools must also bear
the additional burden of paying private-school tuition. This
additional cost has always severely limited the ability of
lower-income families to choose the nonpublic educational
alternative for their children. Rising costs are now putting
private schools beyond the reach of a growing number of middle-
income Americans as well. If we are to provide a meaningful
choice to those who have not had it in the past, and preserve a
choice for those for whom it is in danger of becoming an
illusion, we must find a way to lighten the "double burden" these
families bear.
We must also bear in mind that private schools do more than
offer alternative educational choices to students and their
parents. Nonpublic schools also carry a significant part of the
burden of providing primary and secondary school education in
this country. If it becomes financially impossible for many of
the families now sending their children to nonpublic schools to
continue to do so, the resulting increase in public school
attendance will place large and unwelcome new tax burdens on
state and local taxpayers. The cost to taxpayers of offering
some tax relief to parents, so that they can afford to keep their
children in the private schools of their choice, is modest
compared to the cost of educating their children in the public
schools.
Thus, in order to promote diversity in education and the
freedom of individuals to take advantage of it, and to nurture
the pluralism in American society which this diversity fosters, I
am transmitting to Congress today a draft bill which provides
federal tax credits for the tuition expenses of children
attending nonpublic primary or secondary schools. Starting in
1983, the Education Opportunity and Equity Act of 1982, if
enacted, would allow a tax credit for the tuition expenses of
each student attending a private, non-profit primary or secondary
school. By 1985, when this new tuition tax credit would be fully
phased in, a credit equal to 50% of tuition expenses paid during
the year, but not to exceed $500, would be allowed for each
student.
While it would be desirable for the reasons I have already
mentioned to extend such tax relief for higher education tuition
expenses as well, the large losses in federal tax revenues which
would result make it impossible to recommend such legislation at
this time. Today's proposal makes an important start by
providing this relief where it is most necessary.
Ronald Reagan
MEMORANDUM
THE WHITE HOUSE
WASHINGTON
June 15, 1982
FOR:
EDWIN L. HARPER
FROM:
MICHAEL M. UHLMANN
SUBJECT:
Tuition Tax Credit Package
Attached is the Tuition Tax Credit package consisting
of:
(1) a draft transmittal letter from the President
to the Speaker of the House and the President
of the Senate;
(2) the draft bill;
(3) an explanation of the draft bill.
Also attached is a detailed explanation of the bill's
anti-discrimination provisions. (This latter fact sheet
would not be transmitted to the Hill but is strictly for
internal White House information.)
THE WHITE HOUSE
WASHINGTON
June 15, 1982
MEMORANDUM FOR RICHARD DARMAN
FROM:
EDWIN L. HARPER
R
SUBJECT:
Civil Rights Language on Tuition Tax Credits
The President's tuition tax credit legislative proposal is now ready
to go to the Congress. Because of the potentially controversial
nature of the civil rights section of the legislation, I think that
it is worthwhile to spin it through your system one last time.
Mike Uhlmann, Mel Bradley, Bob Thompson, et all have done a pretty
thorough job of getting views on this legislation. Bottam line:
some controversy will come, but we have the optimal language in the
current draft.
At this point I feel that we should stick with the language
presented in the attached documents, unless someone has a monumental
objection not previously identified.
Since Legislative Strategy has indicated a launch date within the
next few days, a quick turnaround would be appreciated.
The attached package contains:
(1) a draft transmittal letter from the President to the
Speaker of the House and the President of the Senate;
(2) the draft bill;
(3) an explanation of the draft bill.
Also attached is a detailed explanation of the bill's
anti-discrimination provisions. (This latter fact sheet would not
be transmitted to the Hill but is strictly for internal White House
information.)
Explanation of Administration Bill
The Administration's bill would allow an individual taxpayer
to take a credit against income tax in an amount up to 50 percent
of the qualifying tuition expenses paid by the taxpayer in a
taxable year. Qualifying tuition expenses are expenses paid for
tuition and fees to send certain dependents under the age of 20
full-time to private elementary or secondary schools. Qualifying
tuition expenses do not include amounts paid for books, supplies,
equipment, meals, lodging, transportation, or personal expenses,
or for education below the first-grade level or above the
twelfth-grade level.
The credit is allowed only for expenses paid with respect to
students for whom the taxpayer is allowed a dependency exemption
and who bear any of the following relationships to the taxpayer:
children and descendants; stepchildren; siblings, stepbrothers,
and stepsisters; nieces and nephews; and members of the
taxpayer's household, other than the taxpayer's spouse, whose
principal place of abode is the taxpayer's home. To be allowed a
dependency exemption, the taxpayer must provide more than half of
the student's support for the calendar year in which the
taxpayer's year begins, and except for the taxpayer's children
and stepchildren, the student must have less gross income than
the amount of the exemption.
The amount of the credit that is allowable for the taxable
year with respect to a student is subject to two limits. First,
the maximum amount of credit that may be claimed by the taxpayer
for each student in any taxable year is $100 for the taxpayer's
first taxable year beginning on or after January 1, 1983, $300
for the first taxable year beginning on or after January 1, 1984,
and $500 for taxable years beginning on or after January 1, 1985.
Second, the maximum amount of credit per student is reduced
as the taxpayer's adjusted gross income increases over $50,000
and is phased out entirely for taxpayers with adjusted gross
incomes of $75,000 and over. For the first taxable year
beginning on or after January 1, 1983, the $100 per student
maximum credit is reduced by .4 percent of the taxpayer's
adjusted gross income over $50,000; for the first taxable year
beginning after January 1, 1984, the $300 per student maximum
credit is reduced by 1.2 percent of the taxpayer's adjusted gross
income over $50,000; and for taxable years beginning on or after
January 1, 1985, the $500 per student maximum credit is reduced
by 2.0 percent of the taxpayer's adjusted gross income over
$50,000.
The amount of tuition expense for which a taxpayer is
allowed a credit does not include expenses that are paid by
scholarships and other educational aid that are not includible in
the taxpayer's or in the student's income. If the scholarship is
paid directly to the school and the school sends a tuition bill
to the taxpayer that is net of the scholarship, the taxpayer is
not deemed to have been paid the scholarship; the scholarship is
excluded from the computation of tuition expense altogether.
A school with respect to which credits are allowable must
provide a full-time elementary or secondary school program and
must be a private, not-for-profit, day or residential school.
In addition, the school must be exempt from taxation under
section 501 (a) as an organization described in section 501 (c) (3).
Church-operated schools shall, pursuant to section 508 (c),
continue to be exempt from the provisions of section 508 (a) and
(b). The fact that credits are claimed for payments to a
church-operated school shall not serve as a basis for imposing
any new requirements on such schools in this regard.
The bill contains strong provisions to ensure that no
credits will be permitted for amounts paid to schools that follow
racially discriminatory policies.
First, a tax credit cannot be claimed unless the school is a
tax exempt organization under section 501 (c) (3). Under current
law, a school cannot retain 501 (c) (3) status if it discriminates
on the basis of race. The IRS enforces this requirement through
investigations and administrative proceedings. Although such IRS
authority is presently the subject of litigation, the
Administration is committed, in the event that authority is
struck down, to supplying a statutory basis for enforcing non-
discrimination requirements in connection with tax exemption.
The bill also creates a new layer of protections above and
beyond the 501 (c) (3) requirement. In order for tuition expenses
to be eligible for the credit, the school must annually file with
the Secretary a statement under the penalties of perjury that it
has not followed a racially discriminatory policy. In addition,
the Attorney General of the United States, upon petition by an
individual who claims to have been discriminated against by a
school under a racially discriminatory policy, may seek a
declaratory judgment in a United States district court in which
the school is located that the school follows a racially
discriminatory policy. If a final judgment is entered that the
school follows a racially discriminatory policy, tuition tax
credits are disallowed for the year in which the complaint is
filed by the Attorney General and the two succeeding calendar
years. The disallowance does not take effect until all parties
have exhausted their rights to appeal the declaratory judgment.
The proposal defines a racially discriminatory policy as a
policy under which a school refuses, on account of race: to
admit applicants as students; to admit students to the rights,
privileges, programs and activities generally made available to
students by the school; or to allow students to participate in
its scholarship, loan, athletic or other programs. A racially
discriminatory policy does not include the failure by a school to
pursue or achieve any racial quota, proportion, or representation
among its students.
The proposal is effective for tuition expenses paid after
December 31, 1982, in taxable years beginning after that date.
14 June 1982 DRAFT
A bill to amend the Internal Revenue Code of 1954 to provide
a Federal income tax credit for tuition.
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled.
SEC. 1. SHORT TITLE.
This Act may be cited as the "Educational Opportunity and
Equity Act of 1982".
SEC. 2. CONGRESSIONAL FINDINGS.
The Congress finds that it is the policy of the United States
to foster educational opportunity, diversity, and choice for all
Americans. Therefore, Federal legislation should recognize that:
(A) pluralism is one of the great strengths of American
society, that diversity in education is an important contributor
to that pluralism, and that nonpublic schools play an
indispensable role in making that diversity possible;
(B) the existence and availability of alternatives to public
education tend to strengthen public education through competition
and to improve the educational opportunities of all Americans;
(C) Americans should have equal opportunities to choose
between the education offered by public schools and that
available in private educational systems and should not be
compelled because of economic circumstances to accept education
provided by government created and government operated school
systems, and that to force such a selection is an unfair and
unjust discrimination against persons of lesser means;
(D) increasing numbers of American families are unable to
afford nonpublic school tuition in addition to the state and
local taxes that go to support public schools, and that tax
relief for nonpublic school tuition expenses is necessary if
American families are to continue to have a meaningful choice
between public and private education at the elementary and
secondary level;
(E) tax relief in the form of tuition tax credits is the
fairest way to extend a choice in education to a wide range of
individuals, that tax relief in the form of tuition tax credits
creates the least possible danger of interference in the lives of
individuals and families consistent with achieving these ends,
and that tax relief in the form of tuition tax credits achieves
these ends with a minimum of complexity so that those for whom
the tax relief is intended will be able to understand and take
advantage of it;
(F) the tax revenue loss occasioned by a tuition tax credit
for a child would be small compared to the cost to state and
local taxpayers of educating the child at a public school;
(G) equality of educational opportunity is the policy of the
United States, and the tax relief afforded by this legislation
should not be used to promote racial discrimination.
Therefore, the primary purpose of this Act is to enhance
equality of educational opportunity, diversity, and choice for
Americans. The Congress finds that this Act will expand
opportunities for personal liberty, diversity, and pluralism that
constitute important strengths of education in America.
SEC. 3. CREDIT FOR TUITION EXPENSES.
Subpart A of part IV of subchapter A of chapter 1 of the
-2-
Internal Revenue Code of 1954 (relating to credits allowable) is
amended by inserting before section 45 the following new section:
"SEC. 44H. CREDIT FOR TUITION EXPENSES.
" (a) General Rule. -- In the case of an individual, there
shall be allowed as a credit against the tax imposed by this
subtitle for the taxable year an amount equal to 50 percent of
the tuition expenses paid by the taxpayer during the taxable year
to one or more educational institutions for any of his dependents
(as defined in section 152 (a) (1), (2), (3), (6), or (9)) who has
not attained the age of 20 at the close of the taxable year in
which the tuition expenses are paid and with respect to whom the
taxpayer is entitled to a deduction for the taxable year under
section 151.
" (b) Limitations. --
"(1) Maximum Dollar Amount Per Individual. -- The
amount of the credit allowable to a taxpayer under subsection
(a) with respect to tuition expenses paid on behalf of each
dependent shall not exceed --
"(A) $100 in the case of tuition expenses paid
during the taxpayer's first taxable year beginning on
or after January 1, 1983;
" (B) $300 in the case of tuition expenses paid
during the taxpayer's first taxable year beginning on
or after January 1, 1984; and
" (C) $500 in the case of tuition expenses paid
for each taxable year of the taxpayer beginning on or
after January 1, 1985.
-3-
" (2) Phase-out of Credit Above Certain Adjusted Gross
Income Amounts. -- The maximum amount specified in paragraph
(1) shall be reduced by the following percent of the amount
by which the adjusted gross income of the taxpayer for the
taxable year exceeds $50,000 ($25,000 in the case of a
married individual filing a separate return) --
"(A) 0.4 percent for the first taxable year of
the taxpayer beginning on or after January 1, 1983;
"(B) 1.2 percent for the first taxable year of
the taxpayer beginning on or after January 1, 1984; and
" (C) 2.0 percent for each taxable year of the
taxpayer beginning on or after January 1, 1985.
" (c) Special Rules. --
"(1) Adjustment for Scholarships and Financial
Assistance. -- Tuition expenses paid by the taxpayer shall be
reduced by any amounts which were paid to the taxpayer or his
dependents as --
" (A) a scholarship or fellowship grant (within
the meaning of section 117 (a) (1)) which is not
includible in gross income under section 117;
"(B) an educational assistance allowance under
chapter 32, 34, or 35 of title 38, United States Code;
or
" (C) other financial assistance which is for
educational expenses, or attributable to attendance at
an educational institution, and that is exempt from
income taxation by any law of the United States (other
-4-
than a gift, bequest, devise, or inheritance within the
meaning of section 102 (a) )
"(2) Disallowance of Credited Expenses as Deduction. --
No deduction or credit shall be allowed under any other
section of this chapter for any tuition expense to the extent
that such expense is taken into account in determining the
amount of the credit allowed under subsection (a) unless the
taxpayer elects, in accordance with regulations prescribed by
the Secretary, not to apply the provisions of this section
to such tuition expenses for the taxable year.
" (d) Tax Credit Not Allowed for Amounts Paid to Racially
Discriminatory Institutions. --
"(1) Required Annual Statements. -- No credit shall be
allowed under subsection (a) for amounts paid to an
educational institution during a calendar year unless, at
the end of such calendar year, the educational institution
files with the Secretary (in such manner and form as the
Secretary shall by regulation prescribe) a statement, subject
to the penalties for perjury, that
(A) declares that such institution has not
followed a racially discriminatory policy during such
calendar year; and
(B) indicates whether the Attorney General has
brought an action against such institution under section
7408 during such calendar year or either of the two
preceding calendar years.
On or before January 31 of the calendar year succeeding the
-5-
calendar year to which the statement relates, the institution
shall furnish a copy of the statement to all persons who paid
tuition expenses to the institution in the calendar year to
which the statement relates. No credit shall be allowed to a
taxpayer under subsection (a) for amounts paid to an
educational institution during a calendar year unless the
taxpayer attaches to the return on which the taxpayer claims
the credit with respect to such calendar year a copy of the
statement specified in this paragraph.
" (2) Declaratory Judgment Proceedings. -- If an
educational institution is declared to have followed a
racially discriminatory policy in an action brought pursuant
to section 7408, then no credit shall be allowed under
subsection (a) for amounts paid to such educational
institution --
" (A) in the calendar year during which the
Attorney General commenced the action pursuant to
section 7408, and
" (B) in the two calendar years immediately
succeeding the year specified in subparagraph (A).
"(3) Definition. -- For purposes of this subsection, an
educational institution follows a 'racially discriminatory
policy' if it refuses, on account of race --
(A) to admit applicants as students;
(B) to admit students to the rights, privileges,
programs, and activities generally made available to
students by the educational institution; or
-6-
(C) to allow students to participate in its
scholarship, loan, athletic, or other programs.
A racially discriminatory policy shall not include failure to
pursue or achieve any racial quota, proportion, or
representation in the student body. The term 'race' shall
include color or national origin.
"(4) Time of Disallowance. -- No credit shall be
disallowed under paragraph (2) until the judgment against the
educational institution in the action brought under section
7408 has become final. A judgment becomes final within the
meaning of this paragraph when all parties to the action have
exhausted all appellate review.
"(5) Statute of Limitations. -- If a credit is
disallowed under paragraph (2), the period for assessing a
deficiency attributable to the disallowance of such credit
shall not expire before the expiration of 3 years from the
date the judgment becomes final within the meaning of
paragraph (4). Any such deficiency may be assessed before
the expiration of such three-year period notwithstanding the
provisions of any other law or rule of law which would
otherwise prevent such assessment.
" (6) Enforcement Responsibility. -- Exclusive authority
to enforce the prohibition against following a racially
discriminatory policy under this subsection, or to undertake
activities connected with enforcing this subsection, is
vested in the Attorney General. Under this subsection, the
Secretary has authority solely to receive the statements
-7-
referred to in paragraph (1); to disallow credits for amounts
paid to an educational institution which has failed to file
such a statement as provided in paragraph (1) ; to disallow a
credit in the case of a taxpayer who fails to comply with the
procedures prescribed by the Secretary for claiming the
credit; and to disallow credits for amounts paid to an
educational institution against which a final judgment has
been entered in an action under section 7408 as provided in
paragraphs (2) and (4).
" (e) Definitions. -- For purposes of this section --
"(1) Educational Institution. -- The term 'educational
institution' means a school that
"(i) provides a full-time program of elementary
or secondary education;
"(ii) is a privately operated, not-for-profit,
day or residential school; and
"(iii) is exempt from taxation under section
501 (a) as an organization described in section
501 (c) (3), including church-operated schools to which
subsections (a) and (b) of section 508 do not apply.
"(2) Tuition Expenses. -- The term 'tuition expenses'
means tuition and fees paid for the full-time enrollment or
attendance of a student at an educational institution,
including required fees for courses, and does not include any
amount paid for
" (A) books, supplies, and equipment for courses
of instruction at the educational institution;
-8-
" (B) meals, lodging, transportation, or personal
living expenses;
" (C) education below the first-grade level, such
as attendance at a kindergarten, nursery school, or
similar institution; or
" (D) education above the twelfth-grade level."
SEC. 4. DECLARATORY JUDGMENT PROCEEDING.
Subchapter A of chapter 76 of the Internal Revenue Code of
1954 (relating to judicial proceedings) is amended by
redesignating section 7408 as section 7409 and by inserting after
section 7407 the following new section:
"SEC. 7408. DECLARATORY JUDGMENT RELATING TO RACIALLY
DISCRIMINATORY POLICIES OF SCHOOLS.
" (a) In General. -- Upon petition by a person who alleges
that he has been discriminated against under a racially
discriminatory policy of an educational institution, the Attorney
General is authorized, upon finding good cause, to bring an
action against the educational institution in the United States
district court in the district in which the educational
institution is located, seeking a declaratory judgment that the
educational institution has followed a racially discriminatory
policy and has, pursuant to such policy, discriminated against
the person filing the petition.
" (b) Time for Filing Petition. -- The petition shall be
filed with the Attorney General within 180 days after the date on
which the act of racial discrimination is alleged to have been
committed against the person filing the petition.
-9-
(c) Notification and Opportunity to Comment. -- Upon
receipt of the petition, the Attorney General shall promptly
notify the educational institution in writing of such petition
and the allegations contained therein. Before any action may be
filed, the Attorney General shall give the institution a fair
opportunity to comment on all allegations made against it and to
show that the racially discriminatory policy alleged in the
petition does not exist or has been abandoned.
(d) Time for Bringing Action. -- An action may be filed by
the Attorney General no later than 1 year after receiving the
petition.
" (e) Definitions. -- When used in this section, the terms
'educational institution' and 'racially discriminatory policy'
shall have the same meaning as assigned to such terms in section
44H. "
SEC. 5. TECHNICAL AND CONFORMING AMENDMENT.
(a) The table of sections for subpart A of Part IV of
subchapter A of chapter 1 of such Code is amended by inserting
immediately before the item relating to section 45 the following:
"SEC. 44H. Tuition expenses."
(b) Section 6504 of the Internal Revenue Code of 1954
(relating to cross references with respect to periods of
limitation) is amended by adding a new paragraph (12) at the end
thereof:
"(12) Disallowance of tuition tax credits because of a
declaratory judgment that a school follows a racially
discriminatory policy, see section 44H (d) (5) "
-10-
(c) The table of sections for subchapter A of chapter 76 of
the Internal Revenue Code of 1954 (relating to civil actions by
the United States) is amended by striking out the item relating
to section 7408 and inserting in lieu thereof:
"Sec. 7408. Declaratory judgment relating to racially
discriminatory policies of schools.
"Sec. 7409. Cross references. "
SEC. 6. TAX CREDITS ARE NOT FEDERAL FINANCIAL ASSISTANCE.
Tax credits claimed under this section shall not constitute
Federal financial assistance to educational institutions or to
the recipients of such credits.
SEC. 7. EFFECTIVE DATE.
The amendments made by section 3 of this Act shall apply to
taxable years beginning after December 31, 1982, for tuition
expenses paid after that date.
-11-
Substantially the sawe bill
DRAFT
was favorably reported out
Finance
late in the
Letter to the President of the Senate and the Speaker of the 97th
House Transmitting Proposed Legislation. Congress.
I call upon the 98th 1 of this
Dear Mr. President: (Mr. Speaker:) highest priority.
legislation should the
I am herewith transmitting to the Senate (House of
Representatives) proposed legislation entitled "The Educational
3
Opportunity and Equity Act of 1982." This bill would provide for
increased diversity in educational opportunity by providing tax
relief for parents who choose to send their children to nonpublic
schools.
Diversity in educational opportunity has been one of the
great strengths of our nation. It is a foundation of our
pluralistic society and essential to a nation which places a high
value on individual freedom.
We are justly proud of our public schools, which now offer a
free education through the primary and secondary school levels to
all American children willing to take advantage of it. At the
same time, we must remember the important role that has been
played since the beginning of our nation by the diverse nonpublic
schools which also offer an education to American children. Now,
as they did prior to the establishment of our public school
system, parents cherish their ability to choose from a wide range
of educational opportunities for their children. It is of great
importance to the continued vitality of our society that parents
have a meaningful choice between public education and the many
forms of private education that are available.
It is also important that there be innovation and
experimentation in education. The existence of many private, as
well as public schools, assures that new and possibly more
effective teaching approaches will not go untested. It is also
important that the differing needs and demands of students and
their parents be met. Parents who, for whatever reason, are not
satisfied by the education available in their local public
schools should be able to seek an education better suited to
their children elsewhere. Furthermore, the existence of a viable
private alternative should maintain a healthy pressure on public
education authorities to maintain educational standards and meet
student needs.
As we are all aware, the cost of education, both public and
private, has risen dramatically in recent years. We all bear the
burden of the rising costs of public education through state and
local taxation, directly or indirectly. But those parents who
wish their children to attend nonpublic schools must also bear
the additional burden of paying private-school tuition. This
additional cost has always severely limited the ability of
lower-income families to choose the nonpublic educational
alternative for their children. Rising costs are now putting
private schools beyond the reach of a growing number of middle-
income Americans as well. If we are to provide a meaningful
choice to those who have not had it in the past, and preserve a
choice for those for whom it is in danger of becoming an
illusion, we must find a way to lighten the "double burden" these
families bear.
We must also bear in mind that private schools do more than
offer alternative educational choices to students and their
parents. Nonpublic schools also carry a significant part of the
burden of providing primary and secondary school education in
this country. If it becomes financially impossible for many of
the families now sending their children to nonpublic schools to
continue to do so, the resulting increase in public school
attendance will place large and unwelcome new tax burdens on
state and local taxpayers. The cost to taxpayers of offering
some tax relief to parents, so that they can afford to keep their
children in the private schools of their choice, is modest
compared to the cost of educating their children in the public
schools.
Thus, in order to promote diversity in education and the
freedom of individuals to take advantage of it, and to nurture
the pluralism in American society which this diversity fosters, I
am transmitting to Congress today a draft bill which provides
federal tax credits for the tuition expenses of children
attending nonpublic primary or secondary schools. Starting in
3
1983, the Education Opportunity and Equity Act of 1982, if
enacted, would allow a tax credit for the tuition expenses of
each student attending a private, non-profit primary or secondary
school. By 1985, when this new tuition tax credit would be fully
phased in, a credit equal to 50% of tuition expenses paid during
300
the year, but not to exceed $500, would be allowed for each
student.
While it would be desirable for the reasons I have already
mentioned to extend such tax relief for higher education tuition
expenses as well, the large losses in federal tax revenues which
would result make it impossible to recommend such legislation at
this time. Today's proposal makes an important start by
providing this relief where it is most necessary.
Ronald Reagan
This Administration will not tolerate
dis racial discrimination. consequent
the use of tition tax credits to faster
ly, the hill contains strong provisions
to ensure that no credits will be
permitted for amounts paid to
schools that follow racially dis-
are the same identical to those that,
criminatory schools. There provisions
were adoptes adopted by the Senate finan a
Committee last Fall with broad bipartisan
DETAILED EXPLANATION OF
ANTI-DISCRIMINATION PROVISIONS
The Bill ensures that no credits will be permitted for
amounts paid to schools which follow racially discriminatory
policies.
1. 501 (c) (3) Status Required: A tax credit cannot be
claimed unless the school is a tax exempt organization under
section 501 (c) (3) Under current law, a school cannot retain
501 (c) (3) status if it discriminates on the basis of race. The
IRS enforces this requirement through investigations and
administrative proceedings.
The IRS' authority to enforce the non-discrimination
requirements of 501 (c) (3) is being challenged in court. If the
IRS prevails, the 501 (c) (3) requirement in this Bill will
continue to provide strong protection against discrimination. If
the IRS loses, the Administration is committed to providing a new
statutory basis for enforcement of non-discrimination
requirements in connection with tax exemption.
Thus, the requirement that a school have 501 (c) (3) status,
standing alone, ensures that no credits will be allowed for
amounts paid to schools that discriminate.
2. New Two-Pronged Enforcement Mechanism: The Bill also
creates a new layer of protections above and beyond the 501 (c) (3)
requirement. It expressly disallows credits for schools that
follow a "racially discriminatory policy". A school follows a
racially discriminatory policy if it refuses, on account of race,
either to admit student applicants or to allow students full
participation in the school and its programs.
The Bill establishes a two-pronged enforcement mechanism:
Perjury Prosecution: No credit can be taken unless the
school files a statement every year attesting that is has
not followed a racially discriminatory policy. The
statement must be made under oath and is subject to the
penalties for perjury. If a school does discriminate and
files a false statement, school officials are subject to
criminal prosecution.
Civil Action by U.S. Against School: If a person is
discriminated against under a school's racially
discriminatory policy and complains to the Attorney
General, the Attorney General is authorized to file an
action on behalf of the U.S. against the school. If the
U.S. prevails, tax credits are automatically cut off for
three years. The person discriminated against would
continue to have a private right of action under 42 U.S.C.
1981.
3. Interests of Private Schools Adequately Protected: While
the Bill contains potent protections against racial
discrimination, it also protects the legitimate interests of
private schools:
A school cannot be found racially discriminatory simply
because it fails to pursue or achieve racial quotas.
Credits cannot be disallowed until court appeals have been
completed. (However, if the school finally loses, the
3-year penalty period is applied retroactively to the year
when the lawsuit started.)
A school has an opportunity to comment on allegations made
against it before the Attorney General brings a civil
action. It also permits the Attorney General to settle
the suit if the school promptly rectifies its policies.
A bill to amend the Internal Revenue Code of 1954 to provide
a Federal income tax credit for tuition.
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled.
SEC. 1. SHORT TITLE.
This Act may be cited as the "Educational Opportunity and
Equity Act of 1982".
SEC. 2. CONGRESSIONAL FINDINGS.
The Congress finds that it is the policy of the United States
to foster educational opportunity, diversity, and choice for all
Americans. Therefore, Federal legislation should recognize that:
(A) pluralism is one of the great strengths of American
society, that diversity in education is an important contributor
to that pluralism, and that nonpublic schools play an
indispensable role in making that diversity possible;
(B) the existence and availability of alternatives to public
education tends to strengthen public education through
competition and improves the educational opportunities of all
Americans;
(C) Americans should have equal opportunities to choose
between the education offered by public schools and that
available in private educational systems and should not be
compelled because of economic circumstances to accept education
provided by government created and government operated school
systems, and that to force such a selection is an unfair and
unjust discrimination against persons of lesser means;
(D) increasing numbers of American families are unable to
afford nonpublic school tuition in addition to the state and
local taxes that go to support public schools, and that tax
relief for nonpublic school tuition expenses is necessary if
American families are to continue to have a meaningful choice
between public and private education at the primary and secondary
level;
(E) tax relief in the form of tuition tax credits is the
fairest way to extend a choice in education to a wide range of
individuals, that tax relief in the form of tuition tax credits
creates the least possible danger of interference in the lives of
individuals and families consistent with achieving these ends,
and that tax relief in the form of tuition tax credits achieves
these ends with a minimum of complexity so that those for whom
the tax relief is intended will be able to understand and take
advantage of it;
(F) the tax revenue loss occasioned by a tuition tax credit
for a child would be far exceeded by the cost to state and local
taxpayers of educating the child at a public school.
Therefore, the primary purpose of this Act is to enhance
equality of educational opportunity, diversity, and choice for
Americans. The Congress finds that this Act will expand
opportunities for personal liberty, diversity, and pluralism that
constitute important strengths of education in America.
SEC. 3. CREDIT FOR TUITION EXPENSES.
Subpart A of part IV of subchapter A of chapter 1 of the
Internal Revenue Code of 1954 (relating to credits allowable) is
amended by inserting before section 45 the following new section:
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"SEC. 44H. CREDIT FOR TUITION EXPENSES.
"
(a) General Rule. -- In the case of an individual, there
shall be allowed as a credit against the tax imposed by this
subtitle for the taxable year an amount equal to 50 percent of
the tuition expenses paid by the taxpayer during the taxable year
to one or more educational institutions for any of his dependents
(as defined in section 152 (a) (1), (2), (3), (6), or (9)) who has
not attained the age of 20 at the close of the taxable year in
which the tuition expenses are paid and with respect to whom the
taxpayer is entitled to a deduction for the taxable year under
section 151.
" (b) Limitations. --
"(1) Maximum Dollar Amount Per Individual. -- The
amount of the credit allowable to a taxpayer under
subsection (a) with respect to tuition expenses paid on
behalf of each dependent shall not exceed --
" (A) $100 in the case of tuition expenses paid
during the taxpayer's first taxable year beginning on
or after January 1, 1983;
" (B) $300 in the case of tuition expenses paid
during the taxpayer's first taxable year beginning on
or after January 1, 1984; and
" (C) $500 in the case of tuition expenses paid
for each taxable year of the taxpayer beginning on or
after January 1, 1985.
"(2) Phase-out of Credit Above Certain Adjusted Gross
Income Amounts. -- The maximum amount specified in paragraph
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(1) shall be reduced by the following percent of the amount
by which the adjusted gross income of the taxpayer for the
taxable year exceeds $50,000 ($25,000 in the case of a
married individual filing a separate return) --
" (A) 0.4 percent for the first taxable year of
the taxpayer beginning on or after January 1, 1983;
"(B) 1.2 percent for the first taxable year of
the taxpayer beginning on or after January 1, 1984; and
" (C) 2.0 percent for each taxable year of the
taxpayer beginning on or after January 1, 1985.
" (c) Special Rules. --
"(1) Adjustment for Scholarships and Financial
Assistance. -- Tuition expenses paid by the taxpayer shall be
reduced by any amounts which were paid to the taxpayer or his
dependents as --
"(A) a scholarship or fellowship grant (within
the meaning of section 117(a) (1)) which is not
includible in gross income under section 117;
"(B) an educational assistance allowance under
chapter 32, 34, or 35 of title 38, United States Code;
or
" (C) other financial assistance which is for
educational expenses, or attributable to attendance at
an educational institution, and that is exempt from
income taxation by any law of the United States (other
than a gift, bequest, devise, or inheritance within the
meaning of section 102 (a) )
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"(2) Disallowance of Credited Expenses as Deduction. ---
No deduction or credit shall be allowed under any other
section of this chapter for any tuition expense to the extent
that such expense is taken into account in determining the
amount of the credit allowed under subsection (a) unless the
taxpayer elects, in accordance with regulations prescribed by
the Secretary, not to apply the provisions of this section to
such tuition expenses for the taxable year.
" (d) Tax Credit Not Allowed for Amounts Paid to Racially
Discriminatory Institutions. --
"(1) Required Annual Statements. -- No credit shall be
allowed under subsection (a) for amounts paid to an
educational institution during a calendar year unless, at
the end of such calendar year, the educational institution
files with the Secretary (in such manner as the Secretary
shall by regulation prescribe) a statement that such
institution has not followed a racially discriminatory policy
during such calendar year.
"(2) Declaratory Judgment Proceedings. -- If an
educational institution is declared to have followed a
racially discriminatory policy in an action brought pursuant
to section 7408, then no credit shall be allowed under
subsection (a) for amounts paid to such educational
institution --
" (A) in the calendar year during which the
Attorney General commenced the action pursuant to
section 7408, and
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" (B) in the two calendar years immediately
succeeding the year specified in subparagraph (A).
"(3) Definition. -- For purposes of this subsection, an
educational institution follows a 'racially diiscriminatory
policy' if it refuses, on account of race --
(A) to admit applicants as students;
(B) to admit students to the rights, privileges,
programs, and activities generally made available to
students by the educational institution; or
(C) to allow students to participate in its
scholarship, loan, athletic, or other programs.
A racially discriminatory policy does not include failure to
pursue or achieve any racial quota, proportion, or
representation in the student body. The term 'race' shall
include color or national origin.
" (4) Time of Disallowance. -- No credit shall be
disallowed under paragraph (2) until the judgment against the
educational institution in the action brought under section
7408 has become final. A judgment becomes final within the
meaning of this paragraph when all parties to the action have
exhausted all appellate review.
"(5) Statute of Limitations. -- If a credit is
disallowed under paragraph (2), the period for assessing a
deficiency attributable to the disallowance of such credit
shall not expire before the expiration of 3 years from the
date the judgment becomes final within the meaning of
paragraph (4). Any such deficiency may be assessed before
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the expiration of such three-year period notwithstanding the
provisions of any other law or rule of law which would
otherwise prevent such assessment.
" (6) Enforcement Responsibility. -- Exclusive authority
to enforce the prohibition against following a racially
discriminatory policy under this subsection, or to undertake
activities connected with enforcing this subsection, is
vested in the Attorney General. Under this subsection, the
Secretary has authority solely to receive the statements
referred to in paragraph (1) ; to disallow credits for amounts
paid to an educational institution which has failed to file
such a statement as provided in paragraph (1) ; and to
disallow credits for amounts paid to an educational
institution against which a final judgment has been entered
in an action under section 7408 as provided in paragraphs (2)
and (4) .
" (e) Definitions. -- For purposes of this section --
" (1) Educational Institution. --
" (A) In General. -- The term 'educational
institution' means an elementary or secondary school
which is
" (i) an educational organization described
in section 170 (b) (1) (A) (ii) ;
"(ii) a privately operated, not-for-profit,
day or residential school; and
"(iii) exempt from taxation under section
501 (c) (3), including church-operated schools to
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which subsections (a) and (b) of section 508 do
not apply.
"(B) Exception. -- The term 'educational
institution' does not include a school wth a curriculum
of exclusively religious content.
" (2) Tuition Expenses. -- The term 'tuition expenses'
means tuition and fees paid for the full-time enrollment or
attendance of a student at an educational institution,
including required fees for courses, and does not include any
amount paid for
" (A) books, supplies, and equipment for courses
of instruction at the educational institution;
"(B) meals, lodging, transportation, or personal
living expenses; or
" (C) education below the first-grade level, such
as attendance at a kindergarten, nursery school, or
similar institution. "
SEC. 4. DECLARATORY JUDGMENT PROCEEDING.
Subchapter A of chapter 76 of the Internal Revenue Code of
1954 (relating to judicial proceedings) is amended by
redesignating section 7408 as section 7409 and by inserting after
section 7407 the following new section:
"SEC. 7408. DECLARATORY JUDGMENT RELATING TO RACIALLY
DISCRIMINATORY POLICIES OF SCHOOLS.
" (a) In General. -- Upon petition by a person who has been
discriminated against under a racially discriminatory policy, the
Attorney General is authorized, upon finding good cause, to bring
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an action against an educational institution in the United States
district court in the district in which the educational
institution is located, seeking a declaratory judgment that the
educational institution has followed a racially discriminatory
policy and has, pursuant to such policy, discriminated against
the person filing the petition.
" (b) Time for Filing Petition. -- The petition shall be
filed with the Attorney General within 180 days after the date on
which the act of racial discrimination is alleged to have been
committed against the person filing the petition.
" (c) Notification and Opportunity to Comment. -- Upon
receipt of the petition, the Attorney General shall promptly
notify the educational institution in writing of such petition
and the allegations contained therein. Before any action may be
filed, the Attorney General shall give the institution a fair
opportunity to comment on all allegations made against it and to
show that the racially discriminatory policy alleged in the
petition does not exist or has been abandonend.
"(d) Time for Bringing Action. -- An action may be filed by
the Attorney General no later than 1 year after receiving the
petition.
"(e) Definitions. -- When used in this section, the terms
'educational institution' and 'racially discriminatory policy'
shall have the same meaning as assigned to such terms in section
44H.
SEC. 5. TECHNICAL AND CONFORMING AMENDMENT.
(a) The table of sections for subpart A of Part IV of
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subchapter A of chapter 1 of such Code is amended by inserting
immediately before the item relating to section 45 the following:
"SEC. 44H. Tuition expenses. "
(b) Section 6504 of the Internal Revenue Code of 1954
(relating to cross references with respect to periods of
limitation) is amended by adding a new paragraph (12) at the end
thereof:
"(12) Disallowance of tuition tax credits because of a
declaratory judgment that a school follows a racially
discriminatory policy, see section 44H (d) (5) ."
(c) The table of sections for subchapter A of chapter 76 of
the Internal Revenue Code of 1954 (relating to civil actions by
the United States) is amended by striking out the item relating
to section 7408 and inserting in lieu thereof:
"Sec. 7408. Declaratory judgment relating to racially
discriminatory policies of schools.
"Sec. 7409. Cross references "
SEC. 6. TAX CREDITS ARE NOT FEDERAL FINANCIAL ASSISTANCE.
Tax credits claimed under this section shall not constitute
Federal financial assistance to educational institutions or to
the recipients of such credits.
SEC. 7. EFFECTIVE DATE.
The amendments made by section 3 of this Act shall apply to
taxable years beginning after December 31, 1982, for tuition
expenses paid after that date.
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