The Senate released its version of the Tax Cuts and Jobs Act (H.R. 1) Nov. 9, the same day the House Committee on Ways and Means voted 24-16 along party lines to approve its tax bill.
The Senate bill retains most of the student benefits the House bill eliminates or amends, including the student loan interest deduction, employer-provided education assistance (Sec. 127), qualified tuition reductions (Sec. 117(d)), the American Opportunity Tax Credit, and the Lifetime Learning Credit. However, other provisions would still work to undermine the ability of colleges and universities to serve their students—potentially making college more expensive—and erode their financial stability.
Among these provisions, the Senate bill would:
Increase the standard deduction and loss of charitable deduction: The standard deduction would be doubled, which would reduce the number of taxpayers who itemize and significantly reduce the value of the charitable deduction. While the bill preserves a modest charitable giving incentive, its value would be significantly curtailed and charitable giving would be reduced to all nonprofits.
Repeal the deduction for personal exemptions, including for college-age dependents: Under current law, taxpayers may claim a deduction ($4,050 in 2017) from income for each dependent.
Repeal the state and local tax (SALT): This provision in the Senate bill goes much further than in the House version, completely repealing the SALT deduction. There has been a long-term decline in state support for higher education and cuts to SALT likely will exacerbate this problem.
Create a new excise tax on endowments at certain private colleges and universities: Like its House counterpart, the Senate bill fundamentally changes the way nonprofits are treated by creating a new and unprecedented tax on endowments of private colleges and universities, undermining the very nature of their tax-exempt status.
While the Senate bill would retain tax-exempt private activity bonds, which are particularly important to private colleges and universities, it would repeal advance refunding bonds, an important financing tool for institutions to refinance outstanding debt at lower interest rates, and broaden the tax on Unrelated Business Income (UBIT), increasing the regulatory burden, complexity, and cost. (See Taxing T-Shirt Revenue in Inside Higher Ed for more on this issue.)
ACE and the higher education association community are preparing to send a letter to the Senate outlining their objections to the bill, which is being marked up beginning today in the Committee on Finance. The groups sent a letter to the House Committee on Ways and Means in advance of its mark up and vote last week to protest provisions in that measure which would have a severe and negative impact on students, families, and institutions.
For more information and to contact Congress on the Tax Cuts and Jobs Act, see the community’s Tax Reform and Higher Education resource page.