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U.S. Senate 107th Congress First Session

    Education Savings Accounts Approved by Senate Committee
    Senate Passes Bankruptcy Bill

U.S. SENATE 107TH CONGRESS FIRST SESSION

EDUCATIONAL SAVINGS ACCOUNTS APPROVED BY SENATE COMMITTEE

On March 13, 2001, a proposal passed in Committee that will go before the full Senate to allow parents to open tax-free $2,000 savings accounts for their children's K-12 education expenses — including private school tuition.

A legislative package that includes an amendment by Senate Robert Torricelli (Democrat - New Jersey) to expand an existing program allowing contributions of $500 for college expenses was approved by the Senate Finance Committee on March 13, 2001.

In the past two sessions, the Senate has passed the legislation twice. Unfortunately, both times former President Bill Clinton vetoed the legislation that contained the measure.

Complaining that the proposed savings accounts would drain tax dollars from public schools while subsidizing families who already can afford private schools, many Democrats and teachers' unions have called the accounts "backdoor vocuhers."

Senate Democratic Leader Tom Daschle (South Dakota), one of several Democrats who voted against the amendment said, "It may not be a vouicher, but it's [a] cousin of a voucher." Republican Senator James Jeffords (Vermont) joined the Democrats in their protest. But, despite the opposition, the amendment passed by a vote of 12-8.

Following a proposal by President Bush, whose education plan supports allowing families up to $5,000 per child for K-12 school expenses, the savings plan amendment was introduced last month by Senators Torricelli and Tim Hutchinson (Republican - Arkansas).

This year's educational savings account is similar to legislation introduced last year by Senators Torricelli and Paul Coverdell (Republican - Georgia), who died last July. By naming the new bill the Paul Coverdell Education Savings Account Act, the sponsors hope the popular senator's memory will nudge it into law.

The measure would allow tax free interest on savings in prepaid tuition plans. It would also expand tax breaks so that companies and unions could offer education savings accounts as employee benefits. State-level programs that encourage such accounts can be found in only a few states, including Minnesota, Iowa and Illinois.

The [Pau]l Coverdell Education Savings Account Act of 2001(To view this bill, visit: http://thomas.loc.gov/cgi-bin/query/z?c107:S.306.IS:) is part of the finance committee's overall package called the Affordable Education Act of 2001 which includes:

*Expanding tax deductions for the past five years for college students' loan payments

*Allowing teachers to deduct out-of-pocket costs for school supplies

*Making distributions from tuition plans and college savings plans tax free

Permiting pre-paid tuition plans to be offered by private colleges and universities.

If a substantial portion is spent on financing, public schools could allow local governments to increase the amount of government bonds they issue.

(Gregg Toppo, "Senate Considers Education Accounts, The Associated Press, March 13, 2001)

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SENATE PASSES BANKRUPTCY BILL

On March 15, 2001, the Senate approved legislation that would revamp the nation's bankruptcy laws, making it harder for consumers to wipe out their debts.

Decried as unfair by consumer groups and hailed by the credit card industry, the measure passed by an 83 to 15 vote (To see how your senators voted: http://www.senate.gov/legislative/vote1071/vote_00036.html) Possibly within weeks, the bill could become law, since it came to the Senate only two weeks after the House approved a similar bill (To see how your representatives voted: http://clerkweb.house.gov/cgi-bin/vote.exe?year=2001&rollnumber=25). In addition, President Bush has already indicated his willingness to sign the bill into law. It would be the most significant change in the nation's bankruptcy laws in 22 years.

Intended to make it harder for individuals to ease debts under chapter 7 of the U.S. bankruptcy code and make more file under chapter 13, the legislation would require debtors to repay a portion of their debt over a five-year period.

Senator Charles E. Grassley (Republican - Iowa), the bill's lead sponsor said, "Reforming the system will be good for consumers and families; it will bring more fairness for those who work hard to pay their bills."

However, voting for the bill with some reservation was Senator Patrick J. Leahy (Vermont), the top Democrat on the Senate Judiciary Committee, which has jurisdiction over bankruptcy. He said, "The credit card industry is still getting a heck of a windfall and a lot more than they deserve."

According to Senator Leahy, the industry needs to be more responsible about how aggressively it markets credit.

Shortly before passing the bill, most senators made several major changes. For example, the Senate added one amendment that would cap the home equity a bankruptcy filer could keep at $125,000. Another amendment would enable a person filing for bankruptcy who is separated from a spouse to exclude the spouse's income when determining eligibility for bankruptcy. However, most amendments favored by consumer groups that might have unraveled compromises among lawmakers were fought off by Republicans.

When Senate members sit down with members of the House to reconcile the two versions of the bill, these are likely to be sticking points.

Unlike the Senate bill, the House version of the bankruptcy legislation is more complex. For example, if a home were purchased within two years of filing for bankruptcy, the new legislation would permit bankruptcy filers to keep home equity of up to $250,000. Homes purchased more than two years before a bankruptcy filing would be subject to their own state homestead laws, which in Texas, Florida and Kansas have no limits on the value of homes. States with unlimited exemptions created controversial debate because of the filings of several well-known millionaires like Burt Reynolds.

Left unresolved is the topic of how many lawmakers from each party will sit on the committee that will reconcile differences between the House and Senate versions of the bills because Democrats and Republicans each hold 50 Senate seats.

Congress will take a final vote on the package and send it to the President once those differences are settled.

Not surprisingely, the credit card industry lobbied heavily for this bill. According to the Center for Responsive Politics, contributions to federal candidates and their respective political parties from banks and credit card companies during the 2000 election cycle totaled $37.7 million, compared to $20.9 billion in 1996.

Edward Yingling of the American Bankers Association said, "Wealthier fliers walk away from billions of dollars in debt each year, regardless of their ability to pay. This is simply not fair for the 96 percent of Americans who pay their bills on time each month."

However, disagreeing with this are consumer groups. Former Senator Howard M. Metzenbaum, head of the Consumer Federation of America, a nonprofit consumer advocacy group said, "I've never seen a bill that was so one-sided. The cries, claims and concerns of vulnerable Americans who have suffered a financial emergency have been drawned out by the political might of the credit card industry."

Under current law, if bankruptcy filers agree to give up most of their assets, excluding in most cases their houses and other essentials, individuals can file bankruptcy under Chapter 7 of the federal bankruptcy code to wipe out their debts. Insolvency does not have to be proven; however, a court can deny bankruptcy if a judge feels the system is being abused.

Under the new legislation, individuals would still not be required to prove insolvency. However, to decide if debts can be eliminated, a bankruptcy judge would have to use a complex formula — a system that is expected to keep many people from qualifying.

An increase of nearly 70 percent from 1990, more than 1.2 million people filed for bankruptcy in 2000. This year the number is expected to grow with the economic downturn. Chapter 7 is used by about 70 percent of bankruptcy filers, and the remainder use Chapter 13.

(Kathleen Day, "Senate Votes to Tougher Bankruptcy. 36 Percent Support Measure Backed By Bush," The Washington Post, March 16, 2001)

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