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President to President
Molly Corbett Broad's weekly email newsletter to higher education leaders.

Camp Tax Package Slashes Higher Education Tax Credits

Feb. 24-28, 2014 ~ Vol. 15, No. 7

  • Camp Tax Reform Package Slashes Higher Education Tax Credits
  • ACE, Higher Ed Groups Comment on IRS’ Proposed Campaign Activity Rules
  • Video Urges Congress to Close the Innovation Deficit by Supporting Federal Investments in Research
  • IN BRIEF: Negotiated Rulemaking Update; NLRB Webinar Archive Now on YouTube; Rep. Rush Holt to Step Down; Student Achievement Measure Project Moves Forward; ACE Annual Meeting Begins Next Week

As expected, House Ways and Means Committee Chairman Dave Camp (R-MI) released his draft comprehensive tax reform package​ on Wednesday. The nearly 1,000-page bill is quite complex and will take time to fully digest, but we have some initial thoughts on the impact it would have on higher education. 

While still very early in the process—and it is very uncertain whether Congress will address tax reform this year—the bill would collapse the current seven personal income tax rate ​brackets into two and lower the corporate rate to 25 percent from 35 percent. The central goal of the bill is to broaden the tax base and lower rates—and the bill does do that. But to pay for lowering the rates so dramatically, the bill also repeals or makes significant changes to a large number of tax credits and deductions. Some of these will adversely impact students, families and colleges and universities. Among the provisions, the package includes:

  • Substantial changes, pro and con, to the American Opportunity Tax Credit, which helps pay for some of the cost of college. For example, refundability of the credit would be increased which would help many low-income students. On the other hand, part-time and graduate students would no longer be able to use the credit.
  • A repeal of the Hope Scholarship Credit; the Lifetime Learning Credit and tuition deduction; the Student Loan Interest Deduction; the Section 117(d) tuition reduction assistance that some schools offer to their employees; and most of Section 127 employer-provided educational assistance. 
  • A 1 percent excise tax on investment income for private college and university endowments with a value of at least $100,000 per each full-time student 
  • Changes to charitable giving that may result in a drop in donations to colleges and universities.
  • New rules regarding tax-exempt organization executive compensation (extended to cover college coaches and investment advisors); an excise tax on compensation above $1 million; and, for the first time, penalties on individual executives for violations of the rules.
  • A significant expansion of the current unrelated business income tax (UBIT) rules, including on the sale or licensing of a school’s name or logo, treatment of net operating losses, and qualified sponsorship payments.
  • Elimination of the tax exemption for interest on new private activity bonds, which would essentially prevent private institutions from using tax-exempt bond financing.

Again, this particular bill is not likely to move anytime soon, but its release nonetheless complicates the tax picture for colleges and universities because provisions of the plan could be used, in whole or part, whenever policymakers need tax revenue. I will keep you informed as we analyze the bill further and map out advocacy steps. 

We sent comments yesterday to the IRS regarding a question the agency asked in proposed rules related to political campaign activities of tax-exempt nonprofits. 

We are particularly concerned about the possibility that the IRS could extend proposed restrictions on campaign-related activities of so-called social welfare organizations under section 501(c)(4) to also include section 501(c)(3) organizations. While the proposed rule applies only to 501(c)(4)s, the IRS has raised the question of whether the regulations should be extended to 501(c)(3)s. Unfortunately, we believe that if applied to 501(c)(3)s, the rules would fundamentally damage the long-standing civic mission of colleges and universities.

A quick primer on the difference between the two: Under IRS rules, a 501(c)3 is a nonprofit organization established for religious, charitable or educational purposes. These types of institutions typically conduct research and can only engage in a limited amount of lobbying, advocacy or political activity. All private, nonprofit colleges and universities are 501(c)(3)s, and some state universities also are organized as 501(c)(3)s. A 501(c)4 is a social welfare group and can engage in more advocacy, lobbying and campaign-related activity. 

A central feature of the proposed rule is that any “public communication” which clearly identifies a candidate within 30 days of a primary and 60 days of a general election would be barred. The proposed rules would prohibit organizations from hosting events with candidates within those timeframes. What this means, for example, is that presidential debates on campuses during these time periods would be prohibited.

To read our comments in full, click here​.

We joined with our colleagues at 13 business, higher education and scientific organizations this week to release a video urging Congress to “Close the Innovation Deficit” with strong federal investments in research and higher education.

The four-minute video, which can be viewed at www.innovationdeficit.org​, explains the direct link between basic research, economic growth, improved medical treatments and national security; the risk that recent cuts to research pose to the United States’ role as the global innovation leader at a time when other nations are rapidly increasing their research investments; and the significant benefits that renewed investments in research would bring the country.

Our thanks to Colorado State University, which produced the video for the coalition. 

IN BRIEF

A new round of negotiated rulemaking​ started last week at the Department of Education (ED). On the agenda: PLUS loans, state authorization, the credit- to-clock-hour conversion and debit cards. The Education Department will draft possible regulatory language on these topics before the panel meets again next month. 

The second session of another ED rulemaking panel wrapped up this week—this panel is writing regulations for the Campus Sexual Violence Elimination Act (SaVE Act)​, a provision in the Violence Against Women Reauthorization Act, which President Obama signed into law March 7, 2013. The SaVE Act, which amends the campus crime provisions of the Higher Education Act, expands the information colleges must incorporate into their annual crime reports to include acts of domestic violence, dating violence and stalking. This rulemaking reconvenes March 31 for a final session. 

Since I last wrote you, Rep. Rush Holt (D-NJ) announced Feb. 18 his retirement from the House after 16 years of service. A professor and former assistant director of the Princeton Plasma Physics Laboratory, Mr. Holt has long led efforts to fund science education and basic research (and is legendary for taking on an IBM computer in a game of Jeopardy and winning). As President Obama said in a statement​ last week, “his legacy will live on in our labs, our universities, and our classrooms, where countless math and science teachers have been able to afford college thanks in part to the TEACH grants he helped create.” 

If you have not done so already, I encourage you to look closely at the Student Achievement Measure (SAM) Project​, a collaborative effort by the higher education association community to track student attendance across institutions. SAM provides a more complete picture of undergraduate student progress and completion than can be calculated under the federal government's Student Right-to-Know Act, which is limited to measuring the completion of first-time, full-time students at one institution.

Finally, I hope to see many of you next week in San Diego for our 96th Annual Meeting​. If you haven’t registered, it is not too late—we have a full slate of provocative panels and speakers planned, and it is always such a pleasure to spend time talking with the colleagues we see all too rarely. More information is available on the Annual Meeting website, www.aceannualmeeting.org.

Molly Corbett Broad
President of ACE