In the wee hours of Saturday morning, the U.S. Senate joined the House of Representatives in passing legislation that will extend a slew of popular tax breaks, including two with coveted by colleges. The measure, passed by a 79 to 9 margin in the Senate, is on its way to President Bush, who is expected to sign it.

One provision would extend through 2007 a tax deduction for "qualified higher education expenses," which is available even to taxpayers who do not itemize deductions on their federal returns. The provision, which expired at the end of 2005, applies retroactively to the current 2006 calendar year.

Under the provision, individuals who earn less than $65,000, and couples who earn less than $130,000, can deduct up to $4,000 in tuition and some other college costs for themselves or their children. Individual taxpayers who earn between $65,000 and $80,000, and couples who earn between $130,000 and $160,000, can deduct up to $2,000 in such expenses.

"America is in a race with the rest of the world to grow the
strongest, most educated workforce available to attract and keep good-paying jobs here at home," said Sen. Max Baucus, the Montana Democrat who will head the Senate Finance Committee, which makes tax policy, in the next Congress. "So the tuition deduction is about more than taxes. It’s really about making higher education, whether college or vocational school, affordable and accessible for more of our citizens."

The tuition tax deduction was estimated to cost about $3.5 billion over 10 years, with the bulk of that money coming in the early years.

The other provision of interest to higher education that was extended by the bill is a corporate tax credit for investments in university research and development. It, too, will continue through 2007, although advocates had pushed for a permanent extension.

Also before it closed up shop for the year, Congress approved legislation that will continue the federal government's ability to operate until February 15, which will put substantive decisions about funding for the 2007-8 fiscal year -- which is nearly one quarter over at this point -- in the hands of the Democrat-controlled 110th Congress.

The current Congress passed only two of the appropriations bills that finance the federal government, and lawmakers in the newly configured Congress are likely to choose among three options: (1) passing all of the remaining bills separately (which is highly unlikely); (2) passing a continuing resolution for the entire year, which would finance most federal agencies at the same funding levels in 2007-8 that they received in 2006-7; or (3) enacting an "omnibus" measure lumping together all or most of the unpassed bills, and choosing to increase funds for some programs and perhaps cut them for others.

That decision is likely to revolve around whether Democratic leaders want to spend on much time on a 2007-8 budget when they will also be forced to start worrying about 2008-9 spending in early February, when President Bush presents his budget plan for that year.