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"Fiscal Cliff" Deal Delays Education Cuts (For Now)

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Wednesday, January 2, 2013 at 10:53 AM

US President Barack Obama delivers a statement late January 1, 2013 at the White House in Washington DC. Obama said he had fulfilled a campaign promise to make the US tax system fairer with a deal to avert the fiscal cliff crisis that passed after a fierce duel in Congress. At left is US Vice President Joe Biden.

In what was a tense political showdown, legislators approved a measure that averts the "fiscal cliff" at the last moment, thereby avoiding an automatic set of tax hikes and spending cuts. But that doesn't mean education programs are free from the threat of significant budget reductions.

The current deal is a temporary fix, one that delays dealing with the budget until March and plugs the hole until then by:

  • raising revenue by $12 billion (that's largely the tax raises on household incomes above $450,000), and;
  • cutting $12 billion in spending (roughly half of that from domestic spending).

EdWeek points out that the deal "essentially sets up yet another major fiscal fight later on this year.

Plus, the federal government is operating on a temporary budget, called a continuing resolution, which expires at the end of March. Lawmakers will have to figure out a final budget for fiscal year 2013, which began back on Oct. 1, or face the prospect of a government shutdown.

To top it all off, the nation has hit the federal debt ceiling yet again, meaning that the government will need new legislation to be allowed to borrow more money—and keep agencies and programs in business. A measure to deal with that issue will also need to be approved in the next couple of months.

Education advocates fear the result may well be more chaos, since it was the last deal to raise the debt ceiling, back in August of 2011, that put sequestration in place to begin with. Republicans have said they do not want to raise the debt ceiling without reducing spending.

All that means education isn't clear of the threat of significant spending cuts after all.

But the legislation also included several measures that were favorably received by the higher education community. Inside HigherEd reports:

The deal also extends the American Opportunity Tax Credit, a partially refundable $2,500 tax credit for college tuition, for five years. The credit was initially part of the 2009 stimulus bill, and Obama promised during the campaign that he would make the tax credit permanent. In an e-mail to Inside Higher Ed on Tuesday, Terry Hartle, senior vice president for government and public affairs at the American Council on Education, called the extension "particularly welcome news."

The bill also made permanent other tax provisions with implications for higher education, including the student loan interest deduction and tax preferences for Coverdell savings accounts.

Pell Grants, the Federal Grants that help low-income students pay for college, are still protected from budget cuts.

But other programs, especially the federal funding research universities rely on, could still be subject to cuts in the fiscal cliff showdown 2.0, come this Spring.


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