Tax Overhaul Targets Higher Ed Tax Credits, Deductions, and Benefits

House Republicans on Thursday unveiled a sweeping tax overhaul plan including several measures that would place new tax burdens on colleges and students, reported Inside Higher Ed. Overall, the proposal would slash corporate tax rates, reduce the number of income tax brackets, and repeal taxes on large estates. In order to pay for revenue that would be lost, the bill would eliminate or consolidate a number of tax deductions meant to offset the costs of higher education for individuals and companies.

The proposed legislation would end student loan interest rate deductions and cancel a $5,250 corporate deduction for education assistance plans. It would consolidate the Lifetime Learning Credit—which currently provides a tax deduction of up to $2,000 for tuition—and the Hope Scholarship Tax Credit—worth up to $1,500—into the American Opportunity Tax Credit.

The bill would eliminate state and local income tax deductions, potentially encouraging spending cuts in states that are among the biggest supporters of public higher education. It would also double the standard individual tax deduction, meaning much weaker incentives for charitable contributions to colleges.

In addition to the proposed deductions, the bill would impose new taxes affecting higher education. The plan would establish a 20 percent excise tax on the compensation of some highly paid employees of nonprofit organizations, including benefits such as housing and transportation, but not contributions for qualified-retirement plans. It would tax the tuition waivers that many graduate students receive when they work as teaching assistants or researchers. It would also impose a 1.4 percent excise tax on college endowments at private universities valued at $100,000 or more per full-time student. The provision would generate an estimated $3 billion over 10 years. While the endowment tax would apply to fewer than 150 colleges, the impact on how those institutions spend money could be large, The Chronicle of Higher Education reported.

During a markup of the legislation on Monday, House Ways and Means Committee Chairman Kevin Brady (R-TX) introduced an amendment that would exempt more private colleges and universities from the endowment earnings tax, Inside Higher Ed reported. Under the amendment, approved by the committee, the tax would only apply to institutions with assets of $250,000 per student or greater—affecting an estimated 70 colleges.

On the Senate side, Republicans are reportedly considering a 2 percent excise tax on university endowments, according to Politico. The Senate version of the tax rewrite has yet to be release, but could be expected as early as this week.

AACRAO joined a broad coalition of higher education associations to express grave concerns with the House's proposed tax overhaul plan.

"This legislation, taken in its entirety, would discourage participation in postsecondary education, make college more expensive for those who do enroll, and undermine the financial stability of public and private, two-year and four-year colleges and universities," the groups said in a letter to House Ways and Means Committee leaders.

According to the committee summary, the bill’s provisions would increase the cost to students attending college by more than $65 billion between 2018 and 2027, the coalition noted. "This is not in America's national interest," the groups stated.

 

Related Links

Inside Higher Ed

https://www.insidehighered.com/news/2017/11/03/gop-tax-overhaul-would-eliminate-tax-breaks-used-colleges-and-students

The Chronicle of Higher Education

http://www.chronicle.com/article/Republican-Tax-Proposal-Gets/241662

Inside Higher Ed

https://www.insidehighered.com/quicktakes/2017/11/07/house-narrows-endowment-tax-proposal

Politico

https://www.politico.com/story/2017/11/01/senate-tax-reform-who-pays-244433