Higher-education leaders have been clear on their near-unanimous opposition to Republican proposals to overhaul the tax code. But, with a finish line on a final law taking shape, they may soon have to adapt to a new reality.
A week before Thanksgiving, the U.S. House of Representatives passed its version of the tax legislation, largely along party lines, and in doing so, raised the hackles of institutions, students, and their advocates. Several college leaders have made known their dissatisfaction with the legislation.
Among the House bill’s most devastating provisions, they said, were a tax on tuition waivers provided to employees of colleges (including graduate students), the elimination of several student and family tax benefits, a reduction in the number of people who can itemize their charitable deductions, and a 1.4-percent tax on investment earnings by endowments at some private colleges.
The U.S. Senate’s version of the bill was similar, with a few significant tweaks. Noticeably absent were the tax on tuition waivers for graduate students, and the elimination of tax breaks for students. The bill did, however, introduce a tax on royalties generated from the licensing of a college’s logo as unrelated business income. That proposal appears unlikely to make it into the final bill, if passed by the Senate.
The Senate is expected to hold a final vote on the bill on Friday. A report released Thursday afternoon by the Joint Committee on Taxation estimated that the bill would add $1 trillion to the deficit.
“We are watching the process unfold, and monitoring amendments to the Senate bill to make sure nothing sneaks in,” said Steven M. Bloom, director of governmental relations at the American Council on Education.
Here’s where things stand on three areas that higher-ed leaders have cited as causes for concern:
Graduate-Student Tuition-Waiver Tax
The most talked-about proposal in the House’s version of the legislation was a tax on tuition waivers for campus employees, including graduate students. The waivers help graduate-student workers who would otherwise be unable to afford tuition. Many students rallied against the provision.
“Increasing the tax burden on students and universities will make quality higher education less accessible and limit groundbreaking research conducted in the United States,” said Samuel L. Stanley, president of the State University of New York at Stony Brook, in a written statement.
Even though the measure didn’t make it into the Senate’s version, it could still be added during reconciliation of the two measures. (Both the House and the Senate have to agree on a single piece of legislation before it can go to the president’s desk to be signed.)
Charitable Giving
A number of measures in the House’s tax plan were said to have potentially negative effects on charitable giving. The bill calls for doubling the standard deduction for taxpayers — as the Senate’s version would — and reducing the number of people who can itemize their charitable contributions. The House bill would cut that figure from roughly 30 percent of filers to 5 percent.
“Donations to universities are highly reliant on individuals who benefit from tax deductions,” wrote F. King Alexander, president of Louisiana State University. “And the proposed tax reform will remove the deductibility on many donations, potentially eliminating an important incentive to give.”
“If passed without important modifications, our public universities will be faced with even bigger challenges at a time of increasing state-funding instability,” he added.
(In the final hours of Senate negotiations, some lawmakers floated measures that would alleviate the burden on organizations that rely on donations.)
Endowments
The proposed 1.4-percent tax on investment earnings by endowments at private colleges that enroll at least 500 students and have assets of $250,000 per full-time student drew early ire. Both House and Senate bills include the measure, and there is no indication that it is going away.
A Chronicle analysis found that the tax would affect fewer than 65 institions.
But Margaret Spellings, president of the University of North Carolina system and an education secretary under President George W. Bush, argued that the legislation “would siphon millions in donated funds away from crucial priorities and would set a dangerous precedent of taxing nonprofit institutions — a practice that is likely to only escalate in scope and scale as lawmakers seek offsets for other cuts in the future.”
Adam Harris is a breaking-news reporter. Follow him on Twitter @AdamHSays or email him at adam.harris@chronicle.com.
