March 12, 1998
If S. 1133, or its House companion measure H.R. 2646, were presented to the
President, the Secretaries of Education and the Treasury would recommend
that he veto the bill because it is bad education policy and bad tax
Every American child deserves a high-quality elementary and secondary education. Targeting limited Federal resources to build stronger public schools will help ensure that all our Nation's children receive the education they need to become productive citizens. S. 1133 would divert needed resources from these schools.
S. 1133 would disproportionately benefit the most affluent families and provide little benefit to lower- and middle-income families. Families in the highest income bracket that saved the maximum amount permitted by S. 1133 would receive more than twice the benefit of families in the lowest tax bracket that saved the same amount. Moreover, given the expansion of tax-preferred savings vehicles in the Taxpayer Relief Act of 1997, the bill would not create a significant incentive for families to increase their savings for educational purposes. Instead, S. 1133 would reward families, particularly those with substantial incomes, for what they are already doing.
S. 1133 would also create significant compliance problems. Because the bill permits tax-free withdrawals from Education IRAs for a wide array of nonspecific expenditures, such as supplementary items for services required or provided by a school in which a child is enrolled, detailed family records will be needed to verify compliance.
We understand that Senator Daschle intends to offer a substitute that would devote revenue spent by this bill to school construction. We strongly support the school construction program, which would provide tax credits to improve the public schools and support a high-quality education available to every American child, regardless of their family income.
S. 1133 would affect receipts; therefore, it is subject to the pay-as-you-go requirement of the Omnibus Reconciliation Act of 1990. The Administration's scoring of this bill is under development.