As lawmakers in Washington work to enact the most extensive tax reform in a generation, they must be wary of unintended consequences for the nation’s colleges and universities. As president of the University of North Carolina system and a former U.S. secretary of education, under President George W. Bush, I am deeply concerned by provisions in both the House and Senate tax-reform bills that threaten our nation’s students and the institutions that serve them.
Effective reform would enhance economic mobility and offer broader access to higher education. Instead, policy makers are considering new taxes on graduate students, new obstacles to private philanthropy, and a larger burden on college graduates already struggling to pay off student-loan debt.
At a time when our economy is demanding more education for more of our citizens, we cannot erect new barriers for the millions of Americans who need affordable higher education. I join my fellow college leaders, as well as alumni and parents across the country, in calling on our representatives to avoid a self-inflicted setback in the national effort to build a more competitive, better educated citizenry.
Some of the most damaging proposals under consideration would make it harder to raise private dollars for crucial priorities like student aid, faculty salaries, and research. The House and Senate proposals both contemplate a major change in the standard deduction that would threaten private giving to all colleges.
Raising the standard deduction without also creating a universal charitable deduction would discourage millions of households from itemizing their charitable giving and would remove a powerful incentive for philanthropy. A study by Indiana University’s Lilly Family School of Philanthropy estimates that 80 percent fewer taxpayers would itemize for charitable giving under the new law. A report by Congress’s Joint Committee on Taxation estimates a $95-billion drop — 40 percent — in charitable giving nationwide.
That’s especially worrisome for public institutions like the University of North Carolina, where private giving is an increasingly important source of funding. Our donations have grown by 28 percent since 2011. That money has allowed for continued investment in student support, financial aid, and new research, even as state funding for higher education has declined.
Per-student funding of public colleges and universities is lower today in 44 states than it was in 2008, by an average of 15 percent. To avoid damaging cuts, that shortfall must be made up, and the two largest options are tuition and philanthropy. Discouraging private giving will increase the burden on students and families.
The damage caused by those changes would be exacerbated by the proposed endowment tax, which would siphon millions in donated funds away from crucial priorities and would set a dangerous precedent of taxing nonprofit institutions — a practice that is likely to only escalate in scope and scale as lawmakers seek offsets for other cuts in the future.
An additional burden on students and families would come from an ill-considered idea to impose new costs on graduate students by treating tuition waivers as taxable income. Right now, universities waive many graduate students’ tuition, allowing them to pursue advanced studies while earning relatively small stipends. That waiver isn’t cash in the bank, but the House proposal would tax it as though it were.
One estimate found that a graduate student at a public institution could see a 30- to 60-percent increase in his or her tax burden, while one at a private institution could see upward of a 240-percent tax increase. But you can’t pay taxes with a waiver. We already ask too much of our graduate students. Asking them to kick in $5.4 billion more in taxes on theoretical income over the next decade is simply unsustainable.
Graduate students are crucial in doing the core work of running research labs, gathering data, and preparing to lead the next generation of discovery and innovation. They do all of that while often caring for their families or working an outside job to make ends meet. Lawmakers recognize the vital importance of American universities’ research. Just this year, Congress gave our academic enterprises a strong vote of confidence by increasing funding to agencies like the National Institutes of Health, which rely on universities — and our graduate students — to carry out major grant-funded research projects.
Increasing taxes on those students is no one’s idea of fair and sensible tax reform. It would drive talented people away from academe. Government and private-sector companies rely on universities for critical research, and we can’t afford to undermine the country’s last great bastion of basic discovery.
Finally, ideas in the current tax-reform proposals would inflict a significant tax hike on student-loan borrowers. In 2015 more than 12 million borrowers relied on the student-loan interest deduction, which the House bill would repeal, to help manage their college debt.
At a time when Congress is trying to encourage productive investments — predicting, for example, that corporate tax breaks will spur spending and growth — it is shortsighted to punish people who invest in their own skills and competitiveness. The American Council on Education estimates that taxing student-loan interest would raise the cost of those loans by $24 billion over the next decade — money that young consumers could otherwise use to buy houses, start companies, and plan for the future.
By 2020, two-thirds of the country’s jobs will require some level of education beyond high school. Our nation’s long-term health depends on more Americans’ finding a pathway to college. Anything that makes that goal harder to achieve is bad for the country, the economy, and our people. Congress’s Joint Committee on Taxation estimated the House bill would increase the cost of college by more than $71 billion over the next decade. That’s a $71-billion burden for students and families and a $71-billion obstacle to a more competitive economy.
Lawmakers must resist doing long-term damage in the name of short-term reform. We’re at risk of weakening our country’s future for the sake of today’s budget math, and that’s an equation that doesn’t add up for anyone.