U.S. Senator Tammy Baldwin Stands up for Wisconsin Students

Washington D.C. – U.S. Senator Tammy Baldwin has sponsored a bill that closes wasteful special interest tax loopholes in order to prevent a hike in student loan interest rates, which are set to double on July 1st.

Without Congressional Action, need-based student loan interest rates will double on July 1st, meaning students will pay an additional $1000 for each loan. The Student Loan Affordability Act of 2013 (S. 953) will prevent this and protect students by freezing need-based student loan interest rates at 3.4 percent for two years. The legislation is fully paid for by closing three wasteful loopholes.  Specifically, the bill would: limit the use of tax-deferred retirement accounts as a complicated estate planning tool; close a corporate offshore tax loophole by restricting “earnings stripping” by expatriated entities; and close an oil and gas industry tax loophole by treating oil from tar sands the same as other petroleum products.

“Wisconsin families and students cannot afford to have student loan interests rates double. This is a common sense solution that is built on fairness. By closing special interest tax loopholes we can ensure college affordability and strengthen the economic security of Wisconsin families and students,” Baldwin said.

Student loan debt exceeds $1 trillion and is second only to mortgage debt for American families. According to the University of Wisconsin System, 71 percent of UW System resident undergraduates had loan debt at graduation, with the average loan debt of these borrowers being $27,004.

Throughout her time in the House of Representatives, Senator Baldwin advocated for investments in public education to ensure all students had the skills necessary to succeed. Baldwin supported student loan reform to make college financing more accessible and affordable, voted in favor of reauthorizing the Higher Education Act and doubling the maximum number of Pell Grants, and supported the Student Aid and Fiscal Responsibility Act in 2009, which overhauled the federal student loan program and redirected funds to Pell Grants and career training.  In 2011, Baldwin supported the President’s actions to ease the burden of student loan debt for recent graduates.

SUMMARY: The Student Loan Affordability Act of 2013

U.S. Senators Tom Harkin (D-IA), who chairs the Senate Health, Education, Labor, and Pensions (HELP) Committee, and Jack Reed (D-RI) have introduced the legislation along with Majority Leader Harry Reid (D-NV), U.S. Senators Dick Durbin (D-IL), Chuck Schumer (D-NY), Patty Murray (D-WA), John Rockefeller (D-WV), Al Franken (D-MN), Sherrod Brown (D-OH), Christopher Murphy (D-CT), Kirsten Gillibrand (D-NY), and Senator Baldwin.

The bill would extend and fully pay for an additional two years of the current 3.4 percent interest rate on subsidized Federal Direct Stafford Loans, which is set to double on July 1st by closing several tax loopholes.

Closing a Loophole for Tax-Deferred Accounts:  Under current law, holders of IRAs and 401(k)-type accounts are required to begin taking taxable distributions from those accounts once they reach age 70-1/2.  However, a loophole in the tax law allows taxpayers to stretch those distributions over many years if they leave their account to a very young beneficiary.  When the account holder dies, the taxation of the account is then delayed as it is spread over the life of the beneficiary.  The Student Loan Affordability Act would require the retirement savings accounts to be distributed within five years of the death of the account holder, unless the beneficiary is within ten years of the account holder’s age, an individual with special needs or disabled, a minor, or the account holder’s spouse.  This provision saves taxpayers approximately $4.6 billion over ten years.

Closing an Oil Industry Tax Loophole:  The Student Loan Affordability Act eliminates a special tax loophole now enjoyed by the oil industry.  Specifically, the Act would include oil from tar sands among the petroleum products that are subject to taxes that support the oil spill liability trust fund.  In 2011, the IRS determined that the definition of crude oil for purposes of the oil spill liability trust fund does not include tar sands or oil sands.  Yet there is no good reason for this special exclusion.  Tar sands are refined using the same processes as those used in the refining of crude oil, and oil spill liability trust fund revenues are used to clean up oil spills from oil derived from tar and oil sands.  No distinction exists between finished products refined from crude oil or those refined from tar sands.  This provision saves taxpayers approximately $1.3 billion over ten years.

Closing a Loophole for non-U.S. Companies:  Under current law, opportunities are available to inappropriately reduce the U.S. tax on income earned from U.S. operations through the use of foreign related-party debt.  In its 2007 study of earnings stripping, the Treasury Department found strong evidence of the use of such techniques by expatriated entities.  The Student Loan Affordability Act would tighten the limitation on the deductibility of interest paid by an expatriated entity to related persons.  The current law debt-to-equity safe harbor would be eliminated and the 50 percent adjusted taxable income limit that applies to net interest deductions would be reduced to 25 percent.  In addition, the carryforward for disallowed interest would be limited to ten years, and the carryforward of excess limitation would be eliminated.  This provision saves taxpayers approximately $2.7 billion over ten years.