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CAUT Bulletin Archives

October 2002

U.S. Tax Credits Fail Poor Students

Two federal tax credits designed to increase access to post-secondary education provide little benefit to low-income students, according to a report released by the U.S. General Accounting Office.

In 1997, the Clinton administration enacted the HOPE Scholarship and Lifetime Learning credit in an effort to encourage more Americans to pursue a college and university education.

The HOPE scholarship provides a maximum $1,500 tax credit per year for first and second year college students, while the Lifetime Learning credit provides up to $1,000 per year for taxpayers pursuing an undergraduate or graduate degree.

The study by the GAO, the research arm of Congress, found that, in 1999-2000, nearly two-thirds of those claiming the HOPE credit came from families with incomes above $60,000. Only 27 per cent of HOPE recipients were from families with incomes between $20,000 and $40,000.

Even more middle- and upper-income families took advantage of the Lifetime Learning credit. Nearly 70 per cent of recipients reported family income of at least $60,000, with 40 per cent having household income of more than $80,000.

The problem, according to the report, is that both the HOPE and Lifetime Learning credits, like Canada's education tax credits, are non-refundable. That means taxpayers can only receive the credits if they earn enough to pay taxes. For the poorest households that fall below the income tax threshold, the credits offer no help.

The GAO's report supports policymakers in the U.S. who have criticized the tax credits as a handout to wealthier students and raises doubts about the use of similar schemes in Canada.

"The bottom line is if you want to improve access to post-secondary education, you don't do it through the tax system," said CAUT executive director James Turk.