Republicans in the U.S. Senate late Thursday released their proposal to overhaul the tax code, taking a somewhat different approach on higher education from their colleagues in the U.S. House of Representatives. But while the two bills differ in key ways at the moment, each could change significantly as Republicans seek to agree on a single piece of legislation to send to President Trump before the end of the year.
On charitable donations, a key issue for colleges and other nonprofit organizations, the Senate bill keeps a provision from the House that would reduce the number of people who can itemize their charitable contributions, from about 30 percent of filers to just 5 percent. The National Council of Nonprofits has estimated that the measure would cut charitable donations by some $13 billion annually.
Senate Republicans also retained the House’s 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. A Chronicle analysis found that the measure, if enacted, would probably affect fewer than 65 colleges.
Like the House bill, the Senate version would impose a 20-percent tax on compensation in excess of $1 million paid to any of a nonprofit organization’s five highest-paid employees. The measure would apply to colleges as well as teaching hospitals and even college and university foundations.
The Senate plan also proposes new taxes on income from business activities not related to a college’s core academic mission, such as summer sports camps for children, facility rentals, and golf courses. Those unrelated businesses currently can be taxed if they make a profit, but the Internal Revenue Service has found that many colleges incorrectly report the income and losses from such ventures.
New taxes would also be imposed on highly paid employees, on unrelated business income, and on licensing royalties.
One new provision in the Senate bill would treat royalty income from the licensing of a college’s logo, say for athletic gear sold to the public, as unrelated business income. 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.
In other ways, the Senate’s tax overhaul departs from the House’s legislation. The Senate, for example, would not eliminate several tax breaks for students, such as the House’s plan to tax the tuition waivers that graduate students receive when they work as teaching or research assistants. The Senate’s bill also would not remove the tax credit for payment of student-loan interest.
The Senate bill also would not eliminate the $2,000 tuition benefit under the Lifetime Learning Tax Credit, the $5,250 benefit for employer-paid tuition, and the Hope Scholarship Tax Credit, worth up to $2,500. All would be dropped in the House legislation.
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.
Corrections (11/10/2017, 5:17 p.m.): This article originally misstated aspects of two tax benefits related to the payment of tuition. The Lifetime Learning Tax Credit is, as its name makes clear, a tax credit, not a tax deduction. And the Hope Scholarship Tax Credit is worth up to $2,500, not $1,500. The article has been updated to reflect this correction.
