Monday, December 11, 2017

Graduate students' tuition waivers will become taxable income if the House's "tax reform' bill becomes law: Do the universities care?

The House of Representatives approved a "tax reform" bill last month. If the bill becomes law, graduate students' tuition waivers will become taxable income.

This is a big deal. Numerous research universities grant tuition waivers to their graduate students in return for useful work--instructing undergraduates, for example, or serving as laboratory assistants for professors' ongoing research projects.

Under current law, graduate students' tuition waivers are not considered taxable income, and the House's tax bill will hit these students hard. Tuition for many graduate programs can easily top $40,000 a year. If tuition waivers are taxed, most graduate students who receive them will be forced to take out larger student loans simply to pay their federal taxes and stay in graduate school.

This provision is not in the Senate version of the tax bill, so differences between the Senate's bill and the House's bill will be resolved by a joint committee.

This pernicious provision is solely the work of House Republicans, because no House Democrat voted for the bill. Apparently, the Republican legislators are clueless regarding the impact of taxing tuition waivers or they simply don't give a damn.

Will the research universities fight to keep the tuition waiver language out of the tax bill? I doubt it.

The big research universities are more concerned about their endowments than they are about graduate students' tax worries.  The Senate and House versions of the tax bill both call for a 1.4 percent excise tax on university endowments with funds in excess of a quarter million dollars per student.

Douglas Warner, a Yale trustee and retired investment banker, thundered against the proposed excise tax a few days ago. Such a tax would threaten Yale's ability to "build the human and intellectual capital the country requires to thrive as a global leader," Warner declared; but he didn't say a word about the tax bill's effect on graduate students.

 Let's face it. Universities aren't overly concerned about a tax on graduate students' tuition waivers because the harm falls on students, not the universities. The universities know graduate students will absorb this new tax simply by taking out more student loans.


Yale Trustee Douglas Warner: Don't tax Yale's Endowment!


References

Jared Walczak. Important Differences Between the House and Senate Tax Reform Bills Heading Into Conference. Taxfoundation.org, December 2, 2017/.

Douglas A. Warner. The GOP Tax Bill Will Hurt U.S. Universities. Politico.com, December 1, 2017.  

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