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Senate Passes Tax Bill; Final Legislation’s Impact on Higher Education Could Still Be Substantial

December 04, 2017

ACE President Ted Mitchell: The bill could make college more expensive and undermine the financial stability of higher education institutions

The Senate on Saturday approved its version of the Tax Cuts and Jobs Act, a bill ACE President Ted Mitchell called “a significant improvement over the measure passed by the House” but still problematic for higher education. 

The Senate bill, approved on a party-line vote of 51 to 49, does not include provisions cutting direct student benefits that are in the House version passed on Nov. 16. These include repealing the student loan interest deduction and two key tax credits that help students finance their educations, the Lifetime Learning Credit and the Hope Scholarship Tax Credit. 

In repealing the latter two provisions, the House bill also changes the American Opportunity Tax Credit, providing a fifth year at half the amount (a $1,250 tax credit instead of $2,500). 

Also unlike the House bill, the Senate measure does not impose a tax on graduate tuition waivers, an issue that the graduate student community has kept in the spotlight over the past several weeks. As ACE’s Steven Bloom told the Associated Press, “If you were to design a set of public policy ideas meant to undermine access to higher education, you would do what the House decided to do."

However, other provisions in the Senate bill could “make college more expensive and undermine the financial stability of higher education institutions,” according to Mitchell. These include: 

Charitable Giving

Both the House and Senate doubled the standard deduction for taxpayers who donate to charity, which likely will result in reduced charitable deductions. This will undermine all nonprofit institutions, including colleges and universities, through a loss of charitable gifts.

State and Local Income Taxes

The original Senate bill called for a full repeal of the state and local income tax (SALT) deduction. It was amended to preserve an itemized deduction for property taxes, but only up to $10,000, which is identical to the House measure. This ultimately could have a tremendous impact on the revenues available to higher education, as state governments will be under increased pressure not to raise taxes. 

Excise Tax on Endowments for Certain Institutions

Both the House and Senate versions of the tax reform bill include a 1.4 percent excise tax on the investment income of certain institutions. The House bill would tax colleges and universities that enroll at least 500 students and have assets of $250,000 per full-time student, which is approximately 65 institutions. An amendment to the Senate bill narrowed that pool to institutions with assets of $500,000 per full-time student, which is approximately 30 institutions. 

Tax-Exempt Bonds

Both the House and Senate bills would repeal advance refunding bonds, while the House bill would also repeal private activity bonds. Both programs are used by colleges and universities, along with other nonprofit entities and state and local governments, to lower the overall cost of funding for large infrastructure projects and save taxpayer dollars.  

Unrelated Business Income Tax (UBIT) 

The Senate bill would require institutions to compute unrelated business taxable income separately for each trade or business in a so-called “basketing” fashion. This would require all losses and gains to be calculated by activity rather than in the aggregate (something not applicable in corporate taxation), and would result in disparate treatment for nonprofit organizations by holding them to standards and rules not applicable to corporations. (See Taxing T-shirt Revenue in Inside Higher Ed for more details). 

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This vote will not be the end of the discussion—there are substantial differences in the House and Senate bills, and they must first be negotiated before sending a final bill to President Trump for his signature. It is not too late to contact Congress to make your own views known and to encourage your faculty, staff, and students to do the same. For assistance in these efforts, see our Tax Reform and Higher Education resource page

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