EDITORIALS

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November 21, 2017

Tax Reform Firestorm

The Republican tax reform effort threatens higher education as we know it.

House Republicans last week succeeded in passing the Tax Cuts and Jobs Act, a bill that aims to fundamentally restructure the notoriously complicated American tax code. The bill’s perceived deference to corporations and the wealthy has garnered the most backlash, but additionally troublesome are components of the bill that would economically burden graduate students and tax the endowments of wealthy private universities like our own.  

While many hurdles remain before final passage, including the Republican Party’s tenuous hold over the Senate, disparities between the House and Senate versions of the bill, and mounting public discontent—the Republican tax reform effort nevertheless represents one of the most pressing threats to university education in recent memory. 

Most notably, the bill that passed the House repeals Section 117(d)(5) of the current tax code, a provision in place to ensure that higher education remains accessible for lower-income graduate students. Universities typically grant tuition waivers to graduate students, ensuring that the full-time job of student-researcher-instructor remains feasible. Repealing Section 117(d)(5) would effectively treat tuition waivers as taxable income, even though no money in these waivers is ever pocketed by students. In other words, a doctoral student making $30,000 a year and receiving a $50,000 tuition waiver would owe the same amount of money in taxes as someone making $80,000.  

The life of a graduate student is challenging enough as it is; our school’s recent debate over student unionization, which culminated in an overwhelming pro-union vote, underscores this. According to a report from the Association of Public and Land-grant Universities, around 87 percent of graduate students nationwide had incomes of $50,000 or less, and a majority made less than $20,000. Counting waivers for increasingly bloated tuition costs as taxable income would do more than merely complicate the lives of graduate students; such a move would make graduate degrees impossible for all but the most wealthy. The estimated 145,000 current graduate students benefiting from Section 117(d)(5) would now face a staggering choice: going further into debt to pursue their academic futures or reneging on their educational aspirations altogether. 

In rendering graduate student life more financially burdensome than it already is and subsequently deterring others from pursuing graduate education, the Republican tax plan would deeply undercut the ability of universities to fulfill their goals of instructing thousands of students and funding groundbreaking research. How could a university like our own, which relies heavily on graduate students to teach and TA classes, function at its full capacity if this Republican tax bill were signed into law? 

The plan’s proposed tax on endowments similarly threatens universities. Under the plan, private universities with at least 500 students and whose endowments represent at least $250,000 per enrolled student would be subject to a 1.4 percent excise tax on the total investment income made from their endowments. Around 60–70 universities would be subject to such a tax, including the University of Chicago. 

While the needlessly heightened tax on graduate students is categorically wrong, endeavoring to tax the endowments of exorbitantly wealthy universities is more understandable. From 2001 to 2016, the 10 largest university’s endowments altogether grew by about 80 percent, from around $106 billion to $180 billion. Harvard’s endowment of almost $38 billion now rivals the annual GDP of Serbia, while UChicago’s $8 billion roughly matches Niger’s GDP. Favorable tax treatment of these sky-high endowments means that the U.S. government is subsidizing elite universities to the tune of $20 billion a year.  

As students at a well-financed university, we reap the benefits of this lax policy. That being said, it is hard to argue that efforts to direct some portion of endowment money elsewhere—perhaps to any number of underfunded public colleges—wouldn’t be preferable. Many universities’ frustrating lack of transparency on how they handle their endowments underscores the potential problems with allowing universities unfettered access to wealth. 

However, a tax hike has to be understood in context. Most prominently, the Republican tax plan proposes cuts to the corporate tax rate, offering a massive giveaway to corporate America, whose financial reserves already dwarf university endowments. Universities, while occasionally secretive and over-eager in their spending, nevertheless are better stewards of the public trust than corporations, which are more likely to spend their untaxed revenue enriching shareholders than contributing to the public good in any substantive way.  

Unhelpful endowment-related tax policies would be less likely if universities were more forthcoming about how endowment money is actually spent, but the Association of American Universities’ claims that “endowments support substantial aid and student service programs” and that this proposed tax on endowments “will only harm students and their families” have merit. Allowing corporations to accumulate wealth with impunity comes with the consequence that low- and middle-income students will have even more trouble affording college. 

And for what gain? Republicans are profoundly burdening students, parents, and universities, only to collect an increase in tax revenue so meager that it doesn’t even begin to pay for the rest of the bill’s prolific corporate giveaways. A report from the Joint Committee on Taxation estimated that the endowment tax would raise a mere $250 million a year, paying for less than 0.2 percent of the proposed corporate tax cut.  

Rather than addressing the persistent unaffordability of college, these grad student and endowment “reforms” exacerbate the problem. The House Committee on Ways and Means admits this, clarifying that the bill would raise the collective cost of attending college by more than $65 billion over the next 10 years. By prioritizing a symbolic rebuke of universities—supposed bastions of progressivism—over a meaningful reform of outdated tax laws, Republicans are threatening the very livelihood of the American university system.

Editor's Note: News editor Peter Grieve has recused himself from this editorial due to his involvement in coverage of the Tax Cuts and Jobs Act.

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