Senate Republicans passed a comprehensive tax bill this past weekend, fulfilling their promise to do so by the end of the week. The Republicans added multiple amendments with broad-reaching implications for higher education to the bill on Friday, just hours before it passed by a 51–49 vote early Saturday morning.
Fewer universities will be subject to a tax on their investment income as a result of one of the last-minute amendments. In previous versions of the bill, all universities with more than $250,000 in endowment funds per full-time student would have had to pay a 1.4 percent tax on their annual investment returns. But in the bill passed Saturday, that tax applies only to universities with over $500,000 in endowment funds per full-time student. With more than $2 million in endowment funds per student, Yale is one of 27 universities and four Ivies affected by the provision, according to Jorge Klor de Alva, president of the Nexus Research and Policy Center.
The Senate plan also doubles the standard tax deduction for single tax filers from $6,350 to $12,000, giving them more of an incentive to claim the set amount rather than take the other option — itemizing the deductions themselves. Eligible deductions include charitable giving, mortgage expenses and state and local taxes. Since taxpayers who claim the standard deduction get no additional tax benefits for charitable giving, a boosted deduction would discourage donations to Yale and other nonprofit organizations, experts say.
“In both cases, probably the development office of all these institutions are going to have more difficulties in raising funds,” Klor de Alva said. “I think that may be the biggest issue.”
A tax on tuition reduction proposed in the House bill that would triple the tax burden of graduate students was left out of the Senate plan. President Donald Trump is expected to sign a reconciled version of the bill by the end of the year.
Klor de Alva told the News he does not expect a tax on tuition waivers to be included in the reconciled version of the bill. He also attributed the absence of a tax on tuition reduction in the Senate’s bill to the lobbying power of universities and their trade groups.
Although he advocates for some form of a tax on university endowments, Klor de Alva said he is disappointed by both the House and the Senate bills, because money raised by the bills would be “insignificant” and would not benefit education at large.
“This is an initiative that has been in development for quite some time,” Klor de Alva said. “The Senate along with the House didn’t want to give up on it in terms of taxation. But making it simply as an offset is just a failed effort. It’s just poor policy.”
According to calculations done by Michael Parker GRD ’18 for an article in The Scientist, the tax burden on most students enrolled in private universities would become smaller if the Senate’s tax plan — which does not include a tax on tuition reduction — prevailed in its entirety. The Senate’s plan reduces general taxable income compared to the current structure, Parker said.
Yale has taken a hard line against the Republican tax bill. University President Peter Salovey has made lobbying against taxes on endowment income and tuition reduction a major part of his fall schedule, making rounds on Capitol Hill and calling up members of Congress. Dean of the Graduate School of Arts and Sciences Lynn Cooley sent an email to the graduate student community on Nov. 8 affirming Yale is “strongly opposed” to the House bill. And Douglas Warner, former chairman of J.P. Morgan Chase and a member of the Yale Corporation, wrote in an op-ed in Politico on Friday that taxing endowments harms America’s global competitiveness.
Graduate students interviewed by the News said they were upset about the haste with which lawmakers moved in reaching a decision with such far-reaching implications.
“I’m disappointed in the Senate bill, both for its contents and the way it was hastily passed,” Sarah Smaga GRD ’19 said. “From an education standpoint, I’m worried about the excise tax on endowment returns that’s in both bills. But I’m even more concerned about the way the Senate bill passed, before many of us had time to digest what was in it.”
Smaga added that graduate students should keep voicing their concerns to elected officials because provisions in the House bill, especially tuition tax and the repeal of the student loan interest deductions, are still up for debate in Congress.
“We need to explain the value of graduate education to us as individuals and to the strength of the American economy,” she said.
Jingyi Cui | firstname.lastname@example.org