The $1.5 trillion Tax Cuts and Jobs Act (H.R. 1), which passed Congress Dec. 20 and is heading to President Trump’s desk, harbors several provisions that will affect institutions of higher education, such as Vanderbilt. While several provisions that appeared in earlier versions of the bill have been lost in the editing process and mediation between the House and the Senate, many remain in the bill’s current version.
Chancellor Nicholas Zeppos released a response providing mixed feedback on the proposed tax plan, commending the bill’s exclusion of provisions that would increase the cost of higher education, which he expressed his disapproval of in a previous statement last month. He also applauded Tennessee Senator Lamar Alexander’s (R-Tenn.) role in supporting favorable higher education measures during deliberations, particularly his defense of the exclusion of graduate students’ tuition waivers from taxable income.
“The tax bill passed by Congress today rightly excludes draconian proposals that would have made college more expensive for students and families,” Zeppos said in the statement, which was released Dec. 20.
The law maintains the exclusion of graduate tuition waivers and tuition assistance funds for employees and dependents. Additionally, the plan maintains tax benefits on student loan interest, allowing the holders of the loans to deduct up to $2,500 of interest from their taxable income each year. The House bill had proposed eliminating that provision.
Interest on private activity bonds will remain exempt from taxable income. However, this is not of particular concern for Vanderbilt regardless, because the university’s October 2016 $141 million bond issue, which is being used to fund the new E. Bronson Ingram residence hall and other improvements, is composed of taxable bonds.
The bill includes some changes in provisions that directly affect higher education and its financing, some of which Zeppos denounced in his statement.
“But this legislation still falls short in other ways,” Zeppos wrote in the statement. “It needlessly undercuts the resources universities need to operate. And that means it undermines our country’s competitiveness, national security, and economic growth.”
Crucial scholarship and research dollars will now go to the US Treasury instead of benefiting students and society.
Advance refunding of bonds–refinancing of bonds more than 90 days prior to the call date–will no longer be allowed for tax-exempt bond issues. The change is costly for universities who often use advance refunding bonds to refinance high-interest debt at lower interest rates. Previously, tax-exempt bonds were allowed to be refunded once, and taxable bonds have no limit on the number of advance refundings. Therefore, this change makes tax-exempt bonds behave more like taxable bonds, demonstrating one of the reasons Vanderbilt is switching to issuing taxable debt. A portion of Vanderbilt’s Series 2016A bonds was used to advance refund their Series 2009A bonds, but this is irrelevant because the bonds were taxable.
The final version of the bill also implemented a 1.4 percent excise tax on investment income at private colleges that have at least 500 full-time students and assets valued at $500,000 per student. For private universities, this could mean a hefty tax payment on endowment income. Based on the most recent federal data and a report by the National Association of Independent Colleges and Universities, 35 universities would be affected. Vanderbilt is not one of these 35 universities. However, many of its peers––including Washington University in St. Louis, Yale, Harvard, Rice and Emory–will be affected, according to the report. An earlier version of the bill in the House would have taxed universities with assets valued at $250,000 per full-time student, which may have included Vanderbilt.
“Though it only currently affects a handful of universities, the 1.4 percent excise tax on certain university endowments is fundamentally bad public policy,” Zeppos wrote. “It is an unprecedented government intrusion and taxation of tax-exempt universities that will result in fewer resources for student financial aid. Vanderbilt, for example, spends $270 million on student financial aid each year, of which the endowment funded one third.”
Jeopardizing this public-private partnership could have irrevocable impacts on America’s long-term competitiveness and security.
Additionally, the plan doubles the standard deduction (to $12,000 for an individual or $24,000 for married couples), which disincentivizes taxpayers from donating to nonprofit organizations (such as colleges and universities) by increasing the amount individuals have to donate for it to be beneficial for their income tax deduction.
“At Vanderbilt, donors have provided more than $275 million for undergraduate scholarship since 2009,” Zeppos said. “Still other provisions will change the way the University operates, likely increasing our costs and directing resources away from important priorities such as student aid. In other words, crucial scholarship and research dollars will now go to the US Treasury instead of benefiting students and society.”
Zeppos concluded his statement by claiming that the Tax Cuts and Jobs Act as a whole is a concerning piece of legislation.
“Critically, the potential long-term impact this legislation will have on America’s future prosperity is concerning,” Zeppos said. “We must continue to invest in important priorities including cutting-edge and life-saving research. Congress must recommit to the productive partnership between the federal government and America’s research universities, a partnership that has historically received bipartisan support.
“Universities educate students for careers that benefit all of society and make discoveries that cure diseases, grow the economy, and enhance national defense. Jeopardizing this public-private partnership could have irrevocable impacts on America’s long-term competitiveness and security.”