Memo
Rep. Charles W. Boustany, Jr. MD
Chairman, Tax Policy Subcommittee
Committee on Ways and Means, U.S. House of Representatives
To:
From:
Date:
Dwight Dunkley
February 18, 2016
Increase the Exclusion for Employer-Provided Educational
Assistance
Re:
I hope that you will consider resolving a little-known problem that is having a highly detrimental impact on the American economy. The problem is the low exclusion limit on employer provided education assistance.
According to the City University of New York Human Resources department, under the federal
“’Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)’, which was signed into law on June 7, 2001, Section 127 of the Internal Revenue Code was extended permanently for both graduate and undergraduate courses, effective January 1, 2002. This benefit enables employers to assist workers to further their education at a cost of up to $5,250 per year tax free, whether or not the course is job-related.” Simply, this means that employers can only assist their employees with $5,250 of educational assistance before the employers becomes responsible for with-holding taxes from the education assistance. (CUNY, 2005)
Unfortunately, this arbitrary figure is low and has not kept pace with inflation. This bill was debated and passed in 2001 when the $5,250 and cap was determined; however, according a calculator maintained by the U.S. Labor Department’s Bureau of Labor Standards, that amount would be some
$7,023.20 today when adjusted for consumer inflation. (Note: The calculator tracks the Consumer
Price Index). (United States Department of Labor, 2016)
And please keep in mind, Rep. Boustany, that the Consumer Price Index (CPI) has traditionally grown slower than the Higher Education Price Index (HEPI) which is maintained by the well-regarded
Commonfund Institute. Below are the annual rates of higher education inflation since the tax code was amended by EGTRRA in 2001.
Year
2002-2003
2003-2004
2004-2005
HEPI Rate (%)
5.1
3.7
3.9
Year
2008-2009
2009-2010
2010-2011
HEPI Rate (%)
2.2
0.9
2.3

2005-2006
2006-2007
2007-2008
5.1
2.8
5.0
2011-2012
2012-2013
2013-2014
2014-2015
1.7
1.6
3.0
2.2
(Arizona State University, 2016)
The fact is simply, Rep. Boustany, is that an education costing $67.90 in 2001 now costs $100 in
2016. This is an aggregate increase in price of over 30%. And all the while the $5,250 exclusion limit has remained the same; failing to adjust for inflation. (Arizona State University, 2016)
Allow me to outline some of the harms caused by this this static and arbitrary limit on employer provided education assistance.
Firstly, the American economy is undergoing a substantial transformation and many workers are forced to return to institutions of higher education to become equipped with the skills they need to survive and thrive in the new American economy. As Forbes noted in 2013, “from 2007 to 2012 the number of software jobs grew by 31%, three times faster than US jobs overall.” (Bersin, 2013) The arbitrarily low cap on employer provided education assistance and its failure to keep pace with inflation means that many American workers who could be taking advantage of such plans are discouraged from doing so due to the high cash tax liabilities that will rise from non-cash compensation.
Even more shockingly, the Working Condition Fringe Benefit component of the law means that taxpayers are specifically barred from pursuing coursework which either “for the purpose of satisfying the minimum educational requirements to qualify for employment” or “to qualify the employee for a promotion or transfer to a new trade or business.” (CUNY, 2005) This particular aspect of the regulation is especially incongruent with the explosion high skilled economic growth that is taking place today. As economists Buera and Kaboski note, “The share of the service sector in value-added has grown steadily from 60 percent in 1950 to 80 percent in 1980, and this increase is explained by the growth in the consumption of services . This twenty percentage point increase is also explained entirely by the growth of skill-intensive services, and is contemporaneous with an increasing relative quantity of high-skilled labor and a rising skill premium [.]” {emphasis mine} (Buera and
Kaboski, 2009)
In order to facilitate the growth of the American economy and to acknowledgement of the larger macro-economic trends, I believe that this issue must be addressed.
Thank you for your time and attention Congressman Boustany, I am hopeful that your subcommittee can address this small but significant issue.
2

Arizona State University. (2016). Higher Education Price Index (HEPI) History. Retrieved February 18, 2016, from https://cfo.asu.edu/budget-higher-education-price-index-hepi-history?destination=node/1414
Bersin, J. (2013, August 5). The Software Economy: Why Software Jobs Are Taking Over. Retrieved February
18, 2016, from http://www.forbes.com/sites/joshbersin/2013/08/05/the-software-economy-whysoftware-jobs-are-taking-over/#5ed2e1256a36
Buera, F. J., & Kaboski, J. P. (2009). The rise of the service economy (No. w14822). National Bureau of
Economic Research.
City University of New York. (2005, September). Procedures For CUNY Employees Tuition Fee Waiver.
Retrieved February 18, 2016, from https://www.cuny.edu/about/administration/offices/ohrm/reportsforms/tuition_waiver_forms_4_13_06.pdf
United States Department of Labor. (2016, Feb.). Consumer Price Index. Bureau of Labor Statistics . Retrieved
February 19 from http://www.bls.gov/data/inflation_calculator.htm
.
3