[Congressional Record Volume 147, Number 7 (Monday, January 22, 2001)]
[Senate]
[Pages S406-S408]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BAUCUS:
  S. 133. A bill to amend the Internal Revenue code of 1986 to make 
permanent the exclusion for employer-provided educational assistance 
programs, and for other purposes; to the Committee on Finance.


                  Employee educational assistance act

  Mr. BAUCUS. Mr. President, I rise today to introduce legislation to 
make permanent a temporary tax code provision that permits employers to 
pay for their employees' college tuition costs without the employee 
having to pay tax on the amount of the assistance. Senator Grassley 
joins me as an original co-sponsor of the legislation.
  Since its inception in 1979, section 127 of the tax code has enabled 
thousands of employers to promote continuing education among their 
employees and enabled millions of workers to advance their job skills 
without incurring additional taxes.
  Under current law, an employer may provide up to $5,250 per year in 
tuition assistance to its employees without any reduction in the 
employee's take-home pay. This simple rule applies regardless of 
whether the classes undertaken are necessary to maintain an employee's 
job or to qualify for a new job. Without section 127, only those 
courses that directly relate to the employee's current job can be 
subsidized without additional taxes.
  Section 127 has increased upward mobility for workers in an efficient 
manner that is supported by workers, educators and business. Workers 
can improve their job skills and prepare themselves for increased 
responsibility. Businesses can maintain qualified employees and help 
them advance within the organization. Educators and other students 
benefit from having students with real world experience participating 
in the classroom.
  Congress has recognized the strength of section 127. In 1997 the 
Senate voted to make the provision permanent. In the 106th Congress, 
all 20 members of the Finance Committee sponsored legislation to make 
section 127 permanent. So why hasn't the legislation been enacted? 
While it is difficult to be sure, bills including permanent extension 
always come back from a conference with the House of Representatives as 
a short extension with no coverage for graduate courses. Our hope is 
that this year will be different.
  There are two principal flaws in section 127. First, the benefit is 
scheduled to expire on December 31, 2001. The provision has been 
extended ten times since it original enactment. During 1995, the 
provision was expired and, even though reenacted in 1996, employers 
were not sure at the end of 1995 whether or not to report as income 
their employee-assistance program. We have had this provision in the 
Code long enough to know that it works and we should make it permanent. 
The bill Senator Grassley and I introduce today would do just that.
  The second flaw is that the program is limited to employer assistance 
for undergraduate courses. If an employer wants to provide funds for 
its employees to attend graduate school, then the employee has to 
increase his or her wages income and tax liability. For example, 
suppose a bank has an employee who wants to pursue an MBA. The employee 
earns $30,000 per year and pays $3,000 in federal income taxes. If the 
tuition costs $4,000, all of which is paid by the employer, then the 
worker has to pay 15 percent of the value of the assistance, or $600 in 
income taxes. This can be a strong disincentive for low and moderate 
income workers to accept an employer-sponsored tuition assistance 
offer.
  The importance of graduate education has increased dramatically in 
the past two decades. For an increasing number of positions, graduate 
coursework is essential. For an increasing number of employers, 
providing graduate education is necessary to retain employees who are 
capable of doing work at higher levels, for more compensation. The bill 
would permit exclusion of employer-provided tuition benefits for 
undergraduate and graduate education.
  Section 127 is one of the most successful education programs the 
federal government has ever undertaken. The legislation I am 
introducing today expands the program to graduate education and makes 
the provision permanent. I urge my colleagues to work with Senator 
Grassley and me as we seek to enact this legislation.
  Mr. GRASSLEY: Mr. President, today I am joining with Senator Max 
Baucus in introducing a bill that would make permanent the exclusion 
for employer-provided educational assistance under Sec. 127 of the 
Internal Revenue Code. Section 127 allows public or private employers 
to provide up to $5,250 per year to each of their employees in tax-free 
reimbursement for tuition, books and fees for job or non-job related 
education. Section 127 is a purely private-sector initiative and the 
one vehicle that encourages employer investment and assistance in 
providing educational assistance to its workers. There is no 
bureaucracy administering this program--it is run through the 
generosity of private sector employers who provide educational 
opportunities to their employees in the interest of raising workforce 
productivity and making their businesses more competitive. Like other 
types of benefits, Sec. 127 employer-provided educational assistance 
must be provided on a nondiscriminatory basis and may not favor highly-
compensated employees.
  The Revenue Act of 1978 created Sec. 127 and established employer-
provided educational assistance as excludable for any type of course, 
other than a hobby or a sport. Prior to 1978, only specific ``job-
related'' education was excludable from taxable income. The provision 
has

[[Page S408]]

been extended numerous times since its inception. It is time for the 
exclusion to become permanent.
  I commend the leadership of Senator Max Baucus for bringing this bill 
before the Senate and I am proud to be a cosponsor of the bill. I hope 
the rest of our colleagues in the Senate will join in supporting the 
enactment of this bill.
                                 ______