Reading Assignment #1

T. Kane, "Savings Incentives for Higher Education."
National Tax Journal,  September 1998.

For class discussion on Wednesday, January 10th.

This article is available through: Proquest, EBSCOhost, reserve desk

Instructions for using Proquest and EBSCOhost | Schaffer library electronic resources

Discussion questions:

  1. What is Kane’s primary purpose in writing this paper?
  2. What is a "tax expenditure?"
  3. What does Kane mean when he says that the student financial aid system imposes a tax on savings?
  4. What strategies can families use to increase the financial aid they receive?
  5. What does Figure 1 show? What does Kane conclude from it?
  6. What were the goals of the higher education tax expenditures enacted in 1997?
  7. Describe the provisions of the two tax credits for college tuition expenses.
  8. What is the difference between a tax credit and a deduction?
  9. What does it mean to say that a tax credit is not refundable?
  10. What is an IRA?
  11. What provisions does the 1997 law make regarding IRAs?
  12. Describe the provision for deducting interest on loans.
  13. Kane focuses on the impacts of tax expenditures on national savings. What other questions about these tax expenditures might be interesting research subjects?
  14. Why does Kane think that relatively few parents would make withdrawals from IRAs to pay tuition? Do you find his argument persuasive? Why or why not? Does Kane present any empirical evidence in support of his argument?
  15. According to Kane’s calculations, in what circumstances will parents be better off using the Education IRA than claiming a tax credit? What could the Federal government do to make the Education IRAs beneficial to more families?
  16. How might states react to the Federal tuition tax credits? Why?
  17. What impact does the non-refundability of the tax credits have on the extent to which the credits encourage people to go to college?