View Research by Author - Dennis Zimmerman

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The Taxpayer Relief Act in 1997 created two federal tax credits for postsecondary education expenses. One, the Hope Scholarship Credit, can be claimed for each student in the family for two taxable years for expenses incurred attending a qualified education program. The other, the Lifetime Learning Credit, provides a 20 percent credit for the first $5,000 of qualified fees. The credit is available for any number of years and for any level of postsecondary education. This article explains the rationale for and effect of these higher education credits.

Tax-exempt bonds are issued by a state or local government, and the interest on them are exempt from taxation. These bonds have several fundamental characteristics: length of maturity, security, new issue versus refunding, arbitrage earnings, and public versus private purposes for issuing the bonds. Moreover, the bonds are an important factor in four economic policy issues: intergovernmental fiscal relations, the federal budget deficit, resource allocation, and tax equity.

The author provides a clear look at the major policy issues in tax-exempt bond legislation over the last 20 years. Unfettered issuance of such bonds tends to erode the tax base, misallocate the supply of scarce savings, distort the equity of the income tax system, and involve the federal government in some inappropriate financing of state and local services.

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