US tax proposals show support for higher education ‘may be over’

Proposed tax reforms in the US, which could have significant implications for universities’ finances, demonstrate that the federal government’s “long-standing deference towards higher education may be over”, experts have warned.

Republicans in the US Congress are considering two tax plans, one in the House of Representatives and one in the Senate. Both bills include a 1.4 per cent excise tax on private university endowments valued at $100,000 (£76,000) or more per full-time student and propose to increase the standard deduction – the amount of household income that is not taxable if no other deductions are taken. There are fears that this would dramatically reduce the size and the number of charitable contributions that are made each year to universities and other organisations.

The bills also propose eliminating taxpayers’ deductions of state and local taxes from their federal tax bills, which could result in revenue shortfalls in state governments that lead them to reduce funding for public colleges and universities.

The House, which passed its version of the tax bill on 16 November, also bids to make private not-for-profit organisations ineligible for tax-exempt bonds, which would raise construction costs for private colleges, and to eliminate provisions that help students pay for college and graduates repay student loans. The latter means that non-taxable tuition waivers for PhD students who work as teaching or research assistants would end.

Joni Finney, director of the Institute for Research on Higher Education at the University of Pennsylvania, said that the proposals would have “a big influence on higher education” and were “a clear signal that the long-standing deference towards higher education from government may be over”.

She added that higher education has greatly benefited from tax exemptions but “may need to rethink – regardless of what happens with this legislation – how more of their resources can benefit lower-income students”.

“Clearly showing that colleges and universities contribute in very concrete ways to nagging social problems, like closing the income and racial gaps in education achievement, may spare higher education the elitist label that many attach to our nation’s colleges and universities,” she said.

Philip Altbach, founding director of the Center for International Higher Education at Boston College, described the proposals as “deeply worrying” and “indicative of the general anti-higher education views of the Republicans and the Trump administration”. “The ‘culture wars’ continue to boil, with the right wing winning most of the battles,” he said.

Barmak Nassirian, director of federal policy at the American Association of State Colleges and Universities, said that the bills “imply a general lack of support and commitment for higher education on the part of their [legislative] sponsors”.

But he said that while some might see the House bill proposals as “betraying a generic antipathy towards higher education”, one could “just as easily see these as motivated by a desire to reduce federal costs”.

Terry Hartle, senior vice-president in the division of government and public affairs at the American Council on Education, agreed that most of the proposals were not aimed at colleges and universities, but observed that higher education had become “collateral damage”.

“What’s motivating the effort to cut taxes, aside from a sincere belief that lower taxes will grow the economy, is that the Republican Congress wants to show that it has accomplished something,” he said. “So they’re doing it very quickly, without much outreach to the organised interests whose members and constituencies will be affected by changes in the tax code.”

ellie.bothwell@timeshighereducation.com