Skip to content
ADVERTISEMENT
Sign In
  • Sections
    • News
    • Advice
    • The Review
  • Topics
    • Data
    • Diversity, Equity, & Inclusion
    • Finance & Operations
    • International
    • Leadership & Governance
    • Teaching & Learning
    • Scholarship & Research
    • Student Success
    • Technology
    • Transitions
    • The Workplace
  • Magazine
    • Current Issue
    • Special Issues
    • Podcast: College Matters from The Chronicle
  • Newsletters
  • Virtual Events
  • Ask Chron
  • Store
    • Featured Products
    • Reports
    • Data
    • Collections
    • Back Issues
  • Jobs
    • Find a Job
    • Post a Job
    • Professional Development
    • Career Resources
    • Virtual Career Fair
  • More
  • Sections
    • News
    • Advice
    • The Review
  • Topics
    • Data
    • Diversity, Equity, & Inclusion
    • Finance & Operations
    • International
    • Leadership & Governance
    • Teaching & Learning
    • Scholarship & Research
    • Student Success
    • Technology
    • Transitions
    • The Workplace
  • Magazine
    • Current Issue
    • Special Issues
    • Podcast: College Matters from The Chronicle
  • Newsletters
  • Virtual Events
  • Ask Chron
  • Store
    • Featured Products
    • Reports
    • Data
    • Collections
    • Back Issues
  • Jobs
    • Find a Job
    • Post a Job
    • Professional Development
    • Career Resources
    • Virtual Career Fair
    Upcoming Events:
    An AI-Driven Work Force
    AI and Microcredentials
Sign In
News

Final Tax Bill Would Spare Some Higher-Ed Worries, but Could Lead to State Budget Cuts

By Eric Kelderman and Adam Harris December 15, 2017
After a compromise was reached on Friday, Republican legislation to overhaul the federal tax code is headed for final votes in Congress without a tax on graduate-student tuition waivers but with a tax on big college endowment earnings.
After a compromise was reached on Friday, Republican legislation to overhaul the federal tax code is headed for final votes in Congress without a tax on graduate-student tuition waivers but with a tax on big college endowment earnings.uschools/iStock

The Republican-backed tax overhaul is headed for final floor votes in Congress without some of the measures that would directly target higher education. Notably, a proposed tax on tuition waivers for graduate students and other college employees is no longer in the compromise legislation. But a high-profile tax on the investment earnings of some of the largest college endowments stayed in the bill.

To continue reading for FREE, please sign in.

Sign In

Or subscribe now to read with unlimited access for as low as $10/month.

Don’t have an account? Sign up now.

A free account provides you access to a limited number of free articles each month, plus newsletters, job postings, salary data, and exclusive store discounts.

Sign Up

After a compromise was reached on Friday, Republican legislation to overhaul the federal tax code is headed for final votes in Congress without a tax on graduate-student tuition waivers but with a tax on big college endowment earnings.
After a compromise was reached on Friday, Republican legislation to overhaul the federal tax code is headed for final votes in Congress without a tax on graduate-student tuition waivers but with a tax on big college endowment earnings.uschools/iStock

The Republican-backed tax overhaul is headed for final floor votes in Congress without some of the measures that would directly target higher education. Notably, a proposed tax on tuition waivers for graduate students and other college employees is no longer in the compromise legislation. But a high-profile tax on the investment earnings of some of the largest college endowments stayed in the bill.

A conference committee, convened by Republican leaders in Congress, agreed on Friday to the final terms of the bill, which now faces votes in the U.S. House of Representatives and the U.S. Senate. The House is expected to vote on December 21. Odds for the bill’s passage increased on Friday when two potential holdouts, Sen. Marco Rubio, Republican of Florida, and Sen. Bob Corker, Republican of Tennessee, said they would support it. If majorities in both chambers approve the bill, President Trump is expected to sign it.

But even without some controversial measures, the overall package is still expected to have a significant effect on higher-education budgets. Within the bill are provisions that could curtail both state appropriations and college fund raising.

For example, the bill would double the standard deduction for tax filers, cutting the number of people who would itemize their charitable contributions. Many critics fear such changes would act as disincentives for donations to colleges. In addition, laws in many states require their tax rates to change with federal rates, a pattern that could lead to steep state-budget shortfalls as tax revenues decline.

Thomas L. Harnisch, director of state relations and policy analysis at the American Association of State Colleges and Universities, told a recent gathering of state higher-education lobbyists that the tax bill would leave public higher education vulnerable to deep cuts at a time when many state budgets have still not fully recovered from the Great Recession.

Lucy Dadayan, a senior researcher at the Rockefeller Institute of Government, part of the State University of New York, said the bill would reshuffle the “tax burden among various income groups without any coherent strategy,” but could have the greatest impact on high-tax states such as California, New York, and New Jersey.

“In general,” she said by email, “the tax-reform bill is complex and rushed, and would lead to many unexpected ramifications.”

Hits to Higher Ed

Over all, the legislation would lower the corporate tax rate from 35 percent to 21 percent, decrease the number of tax brackets for individual filers, and double the standard deduction for individual filers. Other notable measures include limiting deductions for mortgage interest paid and for state and local taxes paid.

The cost of those changes would add more than a trillion dollars to the federal deficit over the next decade, with some of that money offset by tax increases, including for some colleges.

ADVERTISEMENT

A proposed tax on the endowment earnings of the wealthiest colleges remained in the bill. The legislation would place a 1.4-percent tax on the investment earnings of endowments at colleges with more than 500 students and $500,000 in endowment per student. The provision is expected to affect fewer than 30 colleges nationwide, though the number could certainly grow. A small change in this section states that the tax applies only to “institutions more than 50 percent of the tuition paying students of which are located in the United States.”

During debate over the Senate’s version of the bill, Sen. Pat Toomey, Republican of Pennsylvania, proposed an exemption from the tax for colleges that decline to accept federal funds, a plan seen as helping a single institution, Michigan’s Hillsdale College, the beneficiary of many conservative donors. The “Hillsdale Carve-Out,” as it came to be known, was rejected in the Senate’s final bill.

Larry Arnn, the college’s president, wrote that he believed the proposal was “fair” because institutions like his do not accept taxpayers dollars. But, he added, “as a matter of principle the government should reduce its subsidies to universities rather than taxing endowments.” Principia College, a small, private institution in Illinois that does not receive Title IV funds, would be at risk of being subject to the tax if it were to grow by roughly 20 students.

In addition to those measures, the bill would impose a 21-percent tax on annual compensation in excess of $1 million paid to any of a nonprofit organization’s five highest-paid employees. That’s a one-percentage-point increase from the legislation’s original measures. The provision would apply to colleges but appears to exempt medical professionals, such as medical faculty members who work at academic hospitals, according to higher-education experts who have examined the bill.

ADVERTISEMENT

The final legislation would eliminate the 80-percent tax deduction that sports fans get to take for “seat-license fees” paid to buy tickets to sporting events — a major revenue stream to big-time college-sports programs. Another provision would prohibit colleges from using a loss in one unrelated business to offset a gain in a different such business, potentially increasing their overall tax burden. Unrelated businesses are those not directly connected to their academic mission, such as recreation or fitness centers, sports camps, facility rentals, and golf courses.

Some of the most controversial measures affecting higher education, however, were dropped from the final bill. The compromise bill would avoid proposed changes in the Lifetime Learning Credit, valued at up to $2,000, and the $5,250 corporate deduction for employee education-assistance plans.

A provision to tax tuition waivers as income was scuttled after widespread protests by graduate students. The bill also would not remove the $2,500 deduction for interest paid on student loans.

And special bonds, called Private Activity Bonds, would still be available to nonprofit organizations such as private colleges and alumni foundations. An earlier version of the tax bill would have eliminated those bonds, which are often used for building projects.

ADVERTISEMENT

A proposed tax on the royalties from licensing a college’s logo — for athletic clothing, for example — was also eliminated from the compromise bill.

Long-Term Effects

The most profound impacts on higher education will be detectable only in the long term and will be harder to calculate.

The provision limiting the deduction for state and local taxes paid would put pressure on states to constrain their own spending in areas such as higher education, says a report by Moody’s Investors Service, which counts the tax bill as a possible negative for the higher-education sector.

The provision doubling the standard deduction — the amount of income that tax filers are allowed to automatically shield from taxes — could hamper fund raising by colleges. The change, if enacted, would be expected to decrease the percentage of taxpayers who itemize their tax deductions, such as donations to alumni funds, from about 30 percent of filers to just 5 percent. Nonprofit leaders have estimated the provision would lead to a $13-billion drop in charitable giving nationwide.

ADVERTISEMENT

Doubling the standard deduction could also put a huge dent in some state budgets, leading to cuts in appropriations for public colleges and state student-aid programs.

Some states have laws requiring their tax codes to conform with federal changes as they occur, according to the Tax Policy Center. Enactment of the final tax legislation could mean tax cuts for many people in those states, but also big drops in state tax revenue. Officials in Missouri, for example, have estimated the state will lose as much as $1 billion in tax revenue with the proposed changes in federal taxes, according to The Columbia Tribune.

States that rely on taxes on oil and gas drilling could also lose some of that money, according to Stateline.org. That could happen if the new legislation, if enacted, triggers the automatic suspension of those taxes under a 2010 budget deal that also requires cuts in federal spending, called “sequestration.”

Republicans in Congress are also now raising the possibility of more reductions in federal programs to pay for the tax cuts they are seeking. That could lead to more budget instability at the state level, said Kim Rueben, a researcher at the Tax Policy Center, because a third of state budgets come from federal dollars for programs such as Medicaid. “Future federal cuts are state cuts,” Ms. Rueben told the recent gathering of state higher-education lobbyists.

ADVERTISEMENT

Ms. Dadayan, of the Rockefeller Institute, said the bill would “put fiscal pressure on some middle-class taxpayers as well as on some state and local governments.”

“In short,” she said, “there is a huge fiscal and economic uncertainty in front of state and local governments.”

Eric Kelderman writes about money and accountability in higher education, including such areas as state policy, accreditation, and legal affairs. You can find him on Twitter @etkeld, or email him at eric.kelderman@chronicle.com. Adam Harris is a breaking-news reporter. Follow him on Twitter @AdamHSays or email him at adam.harris@chronicle.com.

Correction (12/16/2017, 4:44 p.m.): This article originally misstated the name of a type of bond that would be preserved under the tax legislation. It is a Private Activity Bond, not a Performance Activity Bond. The article has been updated to reflect this correction.

Read other items in What Colleges Need to Know About the Tax Overhaul Poised to Become Law.
We welcome your thoughts and questions about this article. Please email the editors or submit a letter for publication.
Tags
Law & Policy Political Influence & Activism Finance & Operations
Share
  • Twitter
  • LinkedIn
  • Facebook
  • Email
Eric Kelderman
About the Author
Eric Kelderman
Eric Kelderman covers issues of power, politics, and purse strings in higher education. You can email him at eric.kelderman@chronicle.com, or find him on Twitter @etkeld.
Adam Harris - Profile Pic
About the Author
Adam Harris
Adam Harris, a staff writer at The Atlantic, was previously a reporter at The Chronicle of Higher Education and covered federal education policy and historically Black colleges and universities. He also worked at ProPublica.
ADVERTISEMENT
ADVERTISEMENT

Related Content

Proposed Tax on Graduate Students’ Tuition Waivers Appears to Be Dead
The Brief Life and Undignified Death of the ‘Hillsdale Carve-Out’
Passage of Senate Tax-Reform Bill Leaves Colleges Scrambling
Higher Ed Hates the GOP Tax Proposals. Here Are 3 Reasons Why.
If Republicans Get Their Way, These Colleges Would See Their Endowments Taxed
Tax Reform That Students, Colleges, and Our Country Can’t Afford

More News

Photo illustration showing Santa Ono seated, places small in the corner of a dark space
'Unrelentingly Sad'
Santa Ono Wanted a Presidency. He Became a Pariah.
Illustration of a rushing crowd carrying HSI letters
Seeking precedent
Funding for Hispanic-Serving Institutions Is Discriminatory and Unconstitutional, Lawsuit Argues
Photo-based illustration of scissors cutting through paper that is a photo of an idyllic liberal arts college campus on one side and money on the other
Finance
Small Colleges Are Banding Together Against a Higher Endowment Tax. This Is Why.
Pano Kanelos, founding president of the U. of Austin.
Q&A
One Year In, What Has ‘the Anti-Harvard’ University Accomplished?

From The Review

Photo- and type-based illustration depicting the acronym AAUP with the second A as the arrow of a compass and facing not north but southeast.
The Review | Essay
The Unraveling of the AAUP
By Matthew W. Finkin
Photo-based illustration of the Capitol building dome propped on a stick attached to a string, like a trap.
The Review | Opinion
Colleges Can’t Trust the Federal Government. What Now?
By Brian Rosenberg
Illustration of an unequal sign in black on a white background
The Review | Essay
What Is Replacing DEI? Racism.
By Richard Amesbury

Upcoming Events

Plain_Acuity_DurableSkills_VF.png
Why Employers Value ‘Durable’ Skills
Warwick_Leadership_Javi.png
University Transformation: a Global Leadership Perspective
  • Explore Content
    • Latest News
    • Newsletters
    • Letters
    • Free Reports and Guides
    • Professional Development
    • Virtual Events
    • Chronicle Store
    • Chronicle Intelligence
    • Jobs in Higher Education
    • Post a Job
  • Know The Chronicle
    • About Us
    • Vision, Mission, Values
    • DEI at The Chronicle
    • Write for Us
    • Work at The Chronicle
    • Our Reporting Process
    • Advertise With Us
    • Brand Studio
    • Accessibility Statement
  • Account and Access
    • Manage Your Account
    • Manage Newsletters
    • Individual Subscriptions
    • Group and Institutional Access
    • Subscription & Account FAQ
  • Get Support
    • Contact Us
    • Reprints & Permissions
    • User Agreement
    • Terms and Conditions
    • Privacy Policy
    • California Privacy Policy
    • Do Not Sell My Personal Information
1255 23rd Street, N.W. Washington, D.C. 20037
© 2025 The Chronicle of Higher Education
The Chronicle of Higher Education is academe’s most trusted resource for independent journalism, career development, and forward-looking intelligence. Our readers lead, teach, learn, and innovate with insights from The Chronicle.
Follow Us
  • twitter
  • instagram
  • youtube
  • facebook
  • linkedin