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Kentucky Colleges Get a Boost From Budget Deal

Host of tax code goodies tucked into bipartisan agreement

Senate Majority Leader Mitch McConnell, R-Ky., right, and Senate Minority Leader Charles E. Schumer, D-N.Y., make their way to the Senate floor after announcing a two-year deal on the budget earlier in the day on February 7, 2018. (Tom Williams/CQ Roll Call)
Senate Majority Leader Mitch McConnell, R-Ky., right, and Senate Minority Leader Charles E. Schumer, D-N.Y., make their way to the Senate floor after announcing a two-year deal on the budget earlier in the day on February 7, 2018. (Tom Williams/CQ Roll Call)

At least two colleges in Senate Majority Leader Mitch McConnell’s home state of Kentucky would come out winners under the sweeping budget accord unveiled Wednesday.

For starters, the budget legislation would amend the brand new tax code overhaul to help out Kentucky’s Berea College, which would otherwise be subject to a new 1.4 percent tax on private college and university endowments. GOP leaders’ intent had been to exempt Berea and others that provide free tuition, but they ran into a sticky procedural thicket in the Senate that cost the Kentucky school in the final bill.

As it went to the Senate floor in December, the conference report on the tax law contained the words “tuition-paying” to describe colleges subject to the endowment tax, which applies to those with at least 500 students and endowments worth at least $500,000 per student. However, a point of order under the so-called Byrd rule, raised by Senate Budget ranking member Bernie Sanders, I-Vt., removed the phrase from the bill before it was passed by the Senate, forcing a re-vote in the House.

Those two words — “tuition-paying” — would be restored in the budget bill introduced Wednesday, exempting Berea College, which uses its endowment to fund free tuition for its 1,600 students. Since the new budget measure is not a reconciliation bill, Sanders would not be able to use the Byrd rule to strip it this time.

Watch: McConnell, Schumer Announce They’ve Reached Budget Agreement

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Another McConnell-backed provision would allow the Education Department to waive certain rules and keep federal dollars flowing to schools with high student loan default rates, as long as they are located in the bottom 5 percent of economically distressed counties.

Similar language authored by McConnell and initially attached to the Senate version of the fiscal 2018 Labor-HHS-Education bill would aid Southwest Kentucky Community and Technical College, in Harlan County, Ky.

The budget pact would help the home state of the Kentucky Derby, among other equine-centric states, in another way: renewing a faster, three-year depreciation schedule for owners of race horses. Like the rest of the tax “extender” package, the race horse provision would only be renewed for a year, retroactive to the start of 2017.

Wind, Rum, Movie Studios

Many familiar breaks for underwater homeowners, biodiesel fuel producers, Caribbean rum makers and others would be renewed for one year as well. The move spearheaded by Senate tax writers comes just in time for certain taxpayers to see the benefits in the current filing season that began Jan. 29.

Among the renewed tax provisions would be:

  • Credits for certain wind energy facilities, geothermal heat pumps, fuel cell projects, hybrid solar lighting systems and other energy production; Deductions for mortgage debt forgiveness and mortgage insurance premiums;
  • Special expensing rules for film, television and theater production; Payments to rum producers in Puerto Rico and the U.S. Virgin Islands from excise tax revenues;
  • Deductions for tuition and fees for higher education expenses; Credits for railroad maintenance, Native American employment, mine rescue team training and more.

Text of the budget agreement was filed Wednesday night as an amendment to the House-passed continuing resolution, which Congress needs to pass before midnight on Thursday when a current stopgap spending law expires.

All told, the Joint Committee on Taxation estimates the tax provisions in the bill would add $17.4 billion to deficits over the next decade.

Senate Finance Chairman Orrin G. Hatch, R-Utah, filed legislation in December to extend roughly 30 of the expired tax provisions for two years. House tax writers were less eager to take up a tax extenders bill just weeks after Republicans saw their landmark tax code overhaul signed into law.

Conservative advocacy groups have also condemned the tax breaks as “corporate welfare” and asked Congress not to renew the extenders.

The budget package also makes other tweaks to the new tax law, such as making Puerto Rico eligible for new “opportunity zones” designed to attract investment in economically distressed regions.

The legislation appears to extend for one year the financing rate for a trust fund tapped by the Coast Guard to respond to oil spills, which expired at the end of last year. The oil spill liability trust fund is financed through a per-barrel tax on crude oil at the refinery gate, which would remain in effect through the end of this year under the new provision.

Notably, the fee appears to be reinstated beginning next month, rather than retroactively, after industry groups like the Petroleum Marketers Association of America warned that a retroactive reinstatement might cause problems in the supply chain.

The budget deal also calls for drafting a new tax return form for seniors, or form “1040SR,” available to taxpayers over 65 that would allow for income including Social Security benefits, distributions from retirement plans and other sources.

In addition, the measure includes a series of provisions designed to provide relief for victims of recent natural disasters, including the wildfires in California and Hurricanes Harvey, Maria and Irma.

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