Last weekend, the U.S. Senate passed its version of the tax cut bill that was passed in the U.S. House of Representatives days before. The two bills share some commonalities: Both cut taxes on corporations and individual earners, and both would attempt to shield more taxpayers from the estate tax. However, these and other similarities are outweighed by overwhelming differences on major issues. A revised bill, if it becomes law, could have an impact on Case Western Reserve University students and on American universities.
The U.S. House version of the bill calls for tuition waivers to be taxed as income, a change that could dissuades thousands from pursuing or finishing graduate or doctoral degrees. Tuition waivers are extremely common for graduate students. Often offered in exchange for teaching classes or doing research, tuition waivers are critical for making graduate school attainable for students who may not be able to afford it alone.
The bills also differ greatly on taxation of higher education-related expenses, a difference that will have large impacts on students across the country, including here at CWRU. Indirect policies like raising the standard deduction, which is the dollar amount you’re refunded based on certain amounts in your tax filing, would harm institutions of higher learning by eliminating some of the incentive to donate to tax-exempt entities like colleges. This is a potential problem for colleges and universities, which rely in no small part on donations for funding a variety of their operating and expansion costs.
Professor Karen Beckwith, Chair of the Department of Political Science at CWRU, addressed this component of the tax bill in the political science newsletter last Friday. “Graduate students earn very little in actual stipends,” she said.The newsletter then provides an example: “In addition to providing tuition waivers, The Ohio State University provides some of its political science graduate students with a University Fellowship that pays $25,296 per year … It would be a challenge for graduate students to pay tax on tuition from their graduate stipend alone.”
CNBC analyzed the U.S. House bill and predicted that if passed, it would cause roughly a 400 percent increase in tax bills for graduate students. National Association of Graduate-Professional Students (NAGPS) Director of Legislative Affairs Samantha Hernandez says that this increase would make it financially impossible to earn a Ph.D. in the United States.
“[The House tax bill] would have the greatest negative impact of anything I’ve seen,” she explained in an interview with Wired Magazine. “It would be devastating.”
This is especially true for graduate students here at CWRU. News5Cleveland reported on a molecular medicine Ph.D. candidate named Rita Tohme. Tohme makes $28,000 annually and receives a $60,000 tuition waiver. The U.S. House tax bill would make her and others’ taxable include both the income and waiver, which in her case would bring her tax bill up to almost $90,000. At that level of income, Tohme would have an effective tax rate of around $18,000, or two-thirds of her annual stipend.
The U.S. House bill eliminates the Alternative Minimum Tax, a supplemental tax on companies and individuals who avoid paying full-rate taxes because of exemptions. The Senate keeps the Alternative Minimum Tax, but raises the amount it can affect until 2025. Deductions for school supplies purchased by school teachers doubles from $250 to $500 under the U.S. Senate bill, but is eliminated under the U.S. House bill. Even the tax brackets are different under the two plans, with the Senate lowering rates across existing brackets and the U.S. House scrapping the system entirely and switching to a new four-bracket system.
What Happens Next?
Since the U.S. House and U.S. Senate have passed different pieces of legislation, neither of the current bills will become the law. Instead, the two chambers will enter the process of reconciliation, where leaders of both chambers will meet in a conference committee to iron out the final version of the tax bill. As of Tuesday, the U.S. House delegation to the conference committee will be led by U.S. House Committee on Ways and Means Chairman Kevin Brady, R-Tex. U.S. Senate Committee on Finance Chairman Orrin Hatch, R-Utah, is expected to play a major role. Democrats will also be a part of the committee, though they are heavily outnumbered and will likely have no impact on the final piece of legislation.
At this point, according to CWRU political science professor Joseph White, it’s hard to tell what the final bill will even look like.
“I don’t think there is any way to know what will happen in the final bill,” said White. “If I have to guess, they will try to dump some of the more controversial revenue-raising options, and make up for that with more fraudulent ones.”
White thinks that while important to college and graduate students, policies like the tuition waiver deduction might not be the biggest ticket item in the conference committee.
“I’m not sure graduate students are one of the constituents that the conferees will be most interested in protecting,” White said. “They have more interest in protecting
universities, but Republicans don’t really love universities all that much either.”