Even without the changes cited above, I’m afraid donut hole families could be hit fairly hard by proposed tax reforms. Something’s gotta give if Congress wants to cut business taxes to 20%, reduce personal income taxes on earnings closer to the national median (~$60K for families), yet still limit growth in the deficit to $1.5T.
I ran some numbers in TurboTax the other day. Maybe that’s not an authoritative source, and yes this is all still in flux, but … for married-filing-jointly families with incomes around $135K, 2016 average itemized deductions apparently were greater than the new standard deduction ($24K). After eliminating the state/local tax deduction, etc., they’d be taking the standard deduction. So at around that $135K level, the same old 25% marginal tax rate will apply to a larger taxable income (before even accounting for elimination of personal exemptions.)
This squeeze would be in addition to any impacts on state aid to higher education, alumni giving, etc., affecting college FA and net costs.
See the following link to an Op-Ed piece in which Carleton College’s president, Steven Poskanzer, argues against the 1.4% tax on private college/university endowment income. It was published in the 11-07-2107 Star Tribune (Minneapolis) newspaper.
The House Ways & Means Committee had already adjusted the threshold for applying the tax to $250,000 per student, which would hit a total of 35 institutions currently (#35 being UVa). So if the Senate is talking about $150,000, that’s an expansion.
I thought this was kind of brilliant. It raises revenue from sources that almost completely lack any connection to Trump’s base.
This is a tax that already exists. It’s a 2% (or in some cases 1%) tax on the investment income of private foundations. The bill “simplifies” that to 1.4%, and broadens its base to include the wealthiest universities.
Hello Mr. Gator. My son is currently a Masters of Public Policy student at Stanford after having graduated from there this past June. Stanford just sent out a letter explaining that this tax will result in huge cuts in research grants and teaching assistant positions. Thus, I believe any “research oriented, highly endowed private university” will also be seriously affected; more importantly is the negative result this will have for our children. My son’s salary, which he gets from being a teaching assistant and tuition remission will now be taxed and as a student, he needs this income to live on. I"m afraid this tax will have many more negative consequences than positive and to say it will have no impact on what the colleges are doing is simply incorrect.
@Ellenwk that is a great argument, you should put it on a postcard and send it to your representative, even if you know she/he’s already against this provision.
I think everyone on CC must now referred to me as “Mister Gator”. Let make it happen folks!
@Ellenwk You should be proud of what your son has accomplished! However, I don’t believe the proposed 1.4% tax will have a significant impact on any current grad students at Stanford.
However, a proposed repeal that would cause graduate students’ tuition waivers to be counted as income; making them subject to taxes is very concerning. Any tax on financial aid (merit or need), such as tuition waivers has a significant impact on middle to lower income families.
Right now, there is nothing that says that merit --or grad fellowships – or need-based aid will be taxed. Let’s not conflate them, oh highest Gator in all the land.
Also, I’d love to see some data that shows the % of “lower income” students who pursue doctoral degrees. In other words, how many former Pell grantees (from undergrad) matriculate to a full-funded PhD program. I’m guessing, not many as a %.
I do not favor of taxing university endowment to give tax reduction to even more wealthy corporations.
But a 1.4% tax on income will not introduce too much a shock to a university’s operations either. It will take a university to increase its endowment size by about 1.4% so that the tax can be offset and to maintain the current level of endowment spending.
I think the proposal will actually give many universities a good reason to go out to raise even more endowment money among those donors who care about their universities.
What’s the trade-off to the Corporate Tax cut. Say, if the Corporate rate was set at 20.5% instead of 20% would that cover it? Many of the tax increases or deduction eliminations are to pay for the large Corporate tax cut.
My bet is that if the Corporate rate was set at 20.01%, that would cover it.
There does seem to be a lot of randomness in how the pols are zinging various constituencies to find enough “pay fors” so that the tax plan can get through the Senate with only 51 votes vs. 60.
Also plenty of monkey business being used to hit that number. Some tax breaks are written as being only temporary for a few years (even though it would be highly unlikely that the breaks would not get extended in the future). Other tax breaks are “permanent” but are being phased in over time to make the measured cost smaller.
I wouldn’t be surprised if some of those “pay-fors” would later be reversed or eased after the 51 vote/reconciliation needle has been threaded. Very odd exercise.
