Both the House and Senate tax-reform bills impact universities by imposing new taxes, constraining state budgets and adversely affecting charitable giving. The American Association of State Colleges and Universities (AASCU) identified these as the “three critical issues” confronting higher education in advance of Friday’s Senate vote. Below are more detailed overviews of each issue.
1. Increased pressure on student budgets due to changes to the State and Local Tax Deduction (SALT): As one of the largest discretionary items in state budgets, public institutions bear the brunt of funding cuts when states experience budget shortfalls. Breaking the 100-year practice of allowing taxpayers to deduct state and local taxes from federal income calculations—resulting in a de facto double-taxation—would put enormous pressure on the states’ ability to raise the revenues they need to offer essential services like public higher education. Both the Senate and House versions allow only property taxes up to $10,000 to be excluded.
2. Increased student and family financial burdens through reduction of tax benefits: The higher education provisions in the tax code have significantly increased access to college for low- and middle-income students by encouraging saving for tuition, easing the burden of student loan repayment and providing favorable treatment of tuition benefits for graduate students. Without these benefits, higher education will be less affordable and fewer Americans will be able to seek advanced degrees.
The Senate bill retains these tax benefits for students, but the House version would eliminate them. The House proposes taxing graduate tuition waivers as income.
3. Ending key incentives for charitable contributions: Public colleges and universities rely on charitable contributions, which allow them to meet the mission of educating high-need students despite inconsistent state funding. According to the Council for Aid to Education, institutions collectively received about $41 billion in charitable gifts last year. Both the Senate and House versions double the standard deduction for individuals and couples, thereby reducing the number of taxpayers who will itemize deductions. This would significantly reduce the value of the charitable deduction and lead to a potential drop in donations to all nonprofits, including public colleges and universities.
According to the Chronicle of Higher Education, a congressional conference committee might be formed to reconcile the Senate and House Bills. Another possibility is that the House would vote to accept the Senate version and send it to President Donald J. Trump for his anticipated signature.