Over the weekend, the U.S. Senate narrowly passed a major tax bill that has faced criticism from many higher education leaders and students.
The Senate's version of the bill differs substantially from a version passed in November by the House of Representatives. The process moved quickly, included no public hearings, and featured several last-minute amendments to the bill. Most higher education leaders have expressed criticism of both versions.
The EAB Daily Briefing has surveyed the coverage of this bill to bring you the essential details. Here are the top concerns for colleges and universities:
Concern 1: Potential funding cuts
A report released last week by the Joint Committee on Taxation projected the Senate bill would add more than $1 trillion to the deficit and the House bill would add $1.4 trillion to the deficit.
Some higher education leaders worry that future efforts to offset those deficit increases could mean cuts to funding for colleges and universities. Those concerns are heightened by a recent renewal of interest in reauthorizing the Higher Education Act.
"For colleges and universities already struggling to expand access and improve student outcomes in the face of increasing financial pressure, these tax bills are likely to make the situation worse rather than better. As these proposals get finalized, higher education institutions will need to rethink a number of standard practices," says David Attis, a managing director of strategic research at EAB.
Concern 2: Reduced incentives for philanthropy
Both versions of the tax bill increase the standard deduction for taxpayers. Philanthropy leaders argue that this removes a major incentive for middle-class families to donate to nonprofits, including colleges and universities.
Roughly 30 million people are likely to stop itemizing their deductions, estimates United Way Worldwide President and CEO Brian Gallagher. In an interview with NPR, Gallagher says that it's hard to quantify the potential impact on donations, but cites estimates that 82% of all charitable giving comes from donors who itemize their tax returns.
"Raising the standard deduction could have an outsized impact on charitable giving, with the Lilly School of Philanthropy estimating up to a $13 billion decrease in giving," says Jeff Martin, senior consultant and advancement researcher at EAB. "This comes at a moment when colleges and universities are depending more and more on philanthropy," he adds.
Also see: Why mid-level donors matter
Concern 3: A slippery slope of endowment taxes
Both the House and Senate versions of the bill have the potential to increase the tax burden for colleges and universities, most notably on endowments. The Senate version of the bill imposes a tax on endowments valued at $500,000 per full-time student. While only a handful of institutions meet that criteria, higher education leaders have expressed concerns that it sets a troubling precedent. The House version included a similar provision with a lower threshold, taxing endowments valued at $250,000 per student.
Concern 4: Taxes for graduate students
Unlike the House version of the bill, the Senate plan does not include a provision to tax tuition waivers for employees, including graduate students, as income. Students and faculty protested these provisions on campuses nationwide this week.
Because these tuition waivers also apply to the children of employees, they're a critical part of recruiting and retaining faculty and administrators who could earn higher salaries outside of higher education, officials say.
The House bill also suggests eliminating several tax deductions and credits related to student loans and other financial aid, but the Senate bill does not include these eliminations.
In terms of next steps, House and Senate leaders will appoint conferees, who will go into conference committee to negotiate the differences between the two bills. It's tough to predict whether that will go smoothly, analysts say (Kreighbaum, Inside Higher Ed, 12/4; Harris et al., Chronicle of Higher Education, 12/1; Arnett/Donachie, Education Dive, 12/4; Fox/Mattingly, CNN, 12/4; Martin, NPR, 12/3).
Also see: Carrots, coding, and catering—where colleges are finding revenue beyond tuition
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