House reconciliation bill would remove misguided tax penalty on students with drug records

By Alan D. Viard

The budget reconciliation bill recently assembled by the House Budget Committee includes a long-overdue provision (section 137704) that would allow students with drug felony convictions to claim a key education tax credit on the same basis as other students. This reform, which has received support from members of both parties and organizations across the ideological spectrum, would help students with drug records pursue higher education, which can be a vital step in turning their lives around.

Under current law, any student who “has been convicted of a Federal or State felony offense consisting of the possession or distribution of a controlled substance” is barred from claiming the American Opportunity credit. The tax credit, which applies to the first four years of post-secondary education, is equal to 100 percent of the first $2,000, plus 25 percent of the next $2,000, spent on tuition, fees, and course materials. High-income households are ineligible for the credit while households with no income tax liability can receive 40 percent of the credit as a cash payment.

Because the drug-felony bar has no time limit, a student with a drug felony conviction is disqualified from the credit for life. The student is still allowed to claim the Lifetime Learning credit, but that credit is equal to only 20 percent of educational expenses and is unavailable to households with no income tax liability. The bar applies only to drug felonies — the credit remains available to students convicted of other felonies, including burglary, rape, and murder.

To understand the scope of the drug-felony bar, it is important to realize that an offense constitutes a felony if a prison sentence longer than one year is legally possible, even if the offender ultimately receives a shorter sentence or probation. A wide range of drug offenses are felonies in various states — for example, possession of 30 grams of marijuana is a felony in Florida and Georgia.

A bipartisan group of lawmakers tried to remove the drug-felony bar in 2019. Senators James Lankford (R-Oklahoma), Chris Van Hollen (D-Maryland), Rob Portman (R-Ohio), Jeff Merkley (D-Illinois), Susan Collins (R-Maine), and Ron Wyden (D-Oregon) introduced a bill to that effect. Representatives Danny Davis (D-Illinois), David Schweikert (R-Arizona), Steven Horsford (D-Nevada), Brad Wenstrup (R-Ohio), Terri Sewell (D-Alabama), and Kenny Marchant (R-Texas) introduced a companion bill in the House.

More than 20 organizations signed a letter supporting the 2019 bills. The organizations spanned the ideological spectrum, with the American Conservative Union, the R Street Institute, Americans for Tax Reform, and FreedomWorks joining the NAACP, the Drug Policy Alliance, and the National Association of Criminal Defense Lawyers. The letter detailed the bar’s disparate racial impact and the barriers that it poses to rehabilitation. Unfortunately, Congress took no action on the 2019 bills.

Congress should remove the drug-felony bar, either as part of the budget reconciliation bill or through other legislation. The American Opportunity credit should provide opportunity to Americans with drug convictions who are pursuing higher education.

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