There are many provisions of the Republican tax bill that favor the wealthy and do little for lower and middle-income people. But what may largely be lost from public view are some wrongheaded provisions that would have very damaging consequences for the nation’s most distinguished colleges and universities – and for the nation. It will harm students that aspire to go to college; it will hurt those budding scientists and engineers whose discoveries in the future will be the engine propelling the U.S. economy. The lost scientists are many whose discoveries and innovations will cure diseases and will be the basis for the rise of industries and the creation of millions of new jobs.
If these tax provisions that target colleges and universities are not eliminated during the reconciliation process, the slow process of decline of our great universities and colleges is apt to take place. Our position of preeminence will be at risk. Let me describe a number of these tax provisions and possible university responses to negate their impact.
The most damaging provision would be to tax as income the tuition of Ph.D. students that is waived by almost all of the most distinguished American graduate programs. The tax on imputed income would act as a strong disincentive for students interested in doctoral programs. A Ph.D. student’s annual stipend at our leading graduate programs ranges from roughly $20,000 to $35,000. For many students that is their total annual income. This new tax on imputed income, which could amount to a tax on something in the neighborhood of $50,000 for individuals at private universities, is income that is never billed to students and income that they never receive. But their tax burden would increase by the amount of tuition that they would otherwise would pay if they actually had received a check to pay tuition. It will lower the quality of our graduate students, especially those who are tremendously able but who come from lower income families. These are the people who later make many of the discoveries that cure diseases and transform our economy and improve our lives.
If Congress maintains this new tax, then our universities must respond appropriately. There is a mechanism for offsetting this wrongheaded tax. Universities should simply eliminate all tuition for students who currently receive certain types of fellowships for Ph.D. programs. Since these tuition waivers are purely notational on the budget of the universities, there would be no economic harm to the university and it would allow students to avoid paying taxes on non-existing tuition.
A second highly punitive provision directed at slightly over 100 of the most distinguished colleges and universities (there are roughly 4,500 colleges and universities, other than profit-making institutions in the United States), is the tax on endowment income limited to some of the world’s greatest institutions of higher learning. Do members of Congress and the President understand the functions of endowments? Most college and university endowments are given for a specific purpose; much of it to increase undergraduate financial aid for students. That allows colleges and universities to hold down tuition growth. Other restricted endowments are used to pay faculty salaries – another source of university revenue that reduces the need for tuition dollars. To tax yields on endowments simply increases pressure to raise tuition. Taxing endowment yields would adversely affect students coming from the lower quartile and middle quartile of the applicants to these colleges since there will be fewer dollars that can be used for their financial aid that lowers the sticker price of their attending a highly selective undergraduate program. It will also discourage some alums and friends of the university from giving endowment funds to their alma mater.
Let me place these revisions in social context. The American system of higher learning has been the envy of the world over the past half-century. It has produced the most talented students and, by far, the most important scientific and technological discoveries. Over the past twenty years there have been 197 Nobel Prizes awarded in the sciences and economics. Of this total, 58 percent received either their undergraduate or graduate degrees from American universities and colleges. Of those who received degrees from American universities and colleges fully 83 percent of them studied at universities that would be adversely affected by the new tax bill because of the size of their university’s endowment.
The impact of these tax provisions on the innovations and discoveries that has placed American higher education in a preeminent position cannot be underestimated. The laser, magnetic resonance imaging, the FM radio, the algorithm for Google searches, fetal monitoring, the Global positioning system, the cure for childhood leukemia, the improvements in radar, and even Viagra and tens of thousands more had their origins at our preeminent American universities. These discoveries, in large part, were born at these universities that produced the Nobel Prize winners and those of equivalent creativity – those women and men who have altered our lives for the better. Young people with the talent to produce these advances in knowledge and their applications may be lost from the pool of scientists and healers who in the past have been trained or worked at the very institutions that are now the targets of punitive taxation.
If, for examples, these kinds of provisions are enacted into law, the scientific and technological momentum that Professor Jennifer Doudna and her colleagues at Berkeley and many others at other great universities have created when she and others discovered and began to implement the gene editing process of CRISPR-cas9 could be lost. All of the work that is being done to cure diseases and to fight diseases that affect basic food production and wipe out crop diseases could slow down. The work to cure Huntington’s disease that started with the discovery of the gene for Huntington’s by Columbia’s Nancy Wexler, MIT’s David Houseman and Harvard’s James Gusella, among others, could stop when they are close to finding a cure. I could provide thousands of examples of other work that would be affected by these tax provisions. Has anti-intellectualism reached a boil, as it has in the past, to the point where Americans no longer recognize – and even disdain – the work of scientists, engineers, social and behavioral scientists and scholars? Are they aware of the consequences of these discoveries for the very people who support taxing the resources that fuel discovery and the growth of knowledge?
Finally, state governments have reduced their support of their institutions of higher education by roughly 30 percent on average over the past decade. This has led to increased tuition borne by middle class families. Current provisions of the Republican tax plan would increase still further this economic burden on the students at these state universities by no longer allowing students to take a tax credit on the repayment of some of their student loans and by altering the federal loans programs.
These tax provisions, if contained in the final reconciliation bill, will yield little revenue, but will harm the future scientific and technological progress and world leadership that American universities have been known for since World War II. If Congress wishes to kill the goose that produced the golden egg of America’s supremacy in higher learning, they are on track to doing so should these tax provisions remain in the final bill coming out of Congress. Members of Congress would be wise to strike these provisions from the House and Senate versions of the bill.