Proposed Tax Bill Poses Problems to College, Students and Alums
Issue   |   Tue, 11/14/2017 - 21:43

Days after the announcement of the Tax Cuts and Jobs Act, introduced by the House Committee on Ways and Means on Nov. 2, the college publicized its concerns with various elements of the bill, including a proposed excise tax on some colleges’ endowments.

President Biddy Martin’s email, sent to the Amherst community on Nov. 7 and published online, outlined the elements of the bill that she said may threaten the college’s ability to fully support its mission and students.

Martin’s email highlighted a specific proposal to establish an excise tax on the college’s endowment earnings. Unlike many universities, Amherst receives over 50 percent of its budget for operations through its endowment, making any significant taxes on endowment a fairly serious concern for the college.

“The exact financial impact of the proposed endowment tax on Amherst is not clear at this early point; it will depend on the final definition of net investment income and future investment performance,” Martin said. Unlike for-profit corporations, which Martin said are able to “fund federal income taxes from free-and-clear operating profits,” Amherst and other not-for-profit institutions are unable to do the same.

“Our early estimates suggest the impact on Amherst could be in the tens of millions of dollars over the next decade,” Martin said.

Her email concluded with a call for community members to contact their federal elected officials to voice their opinions and concerns with the bill.

Dean of Financial Aid Gail Holt said that currently, there have been no specific discussions regarding where money would come from to reconcile losses in the endowment should the tax plan pass.

“What I will say is that Amherst has been, always been and I hope will continue to be, dedicated to the financial aid program,” Holt said. “I think that’s evident in the policies we have today, which are more generous than others.”

According to Holt, similar threats to the college’s endowment in the past have taken the form of proposals on the state level.

“But they’ve never passed, and I think the reason they don’t pass is because the value that legislators come to realize in terms of the public good that institutions are serving,” Holt said. “All the dollars that Amherst is bringing in are trying to benefit students … Biddy’s letter, I think, is quite clear in helping our community understand what’s at stake.”

Holt also drew attention to other areas of the bill that could potentially impact students, such as the act’s proposed eliminations of tax deductions on student loan interest. With approximately 29 percent of the class of 2017 graduating with student loans, according to the college’s financial aid website, the possible removal of this provision raises concerns for many current and future Amherst graduates.

“This is an opportunity for students to speak out and say, ‘Listen, we’re already paying as much as we can, we’re already struggling to afford an education so that we can go out and contribute to the public good. Our college is helping us as well, and we want you to recognize that support,’” said Holt.

Chief Financial and Administrative Officer Kevin Weinman said in an email interview that the college is “closely monitoring developments on Capitol Hill” and called the tax proposal “disheartening.”

A tax on net investment income would reduce future endowment valuation, he said, and decrease funds available for future budgets. It could also serve to discourage future gifts to endowments, according to Weinman. Further, he said the proposal to eliminate tax-exempt financing by not-for-profit institutions would make borrowing more costly and harm the college’s ability to undertake future facility renovations and construction projects.

“It is my hope that there will be a realization of the societal benefits provided by higher education institutions of all types, and that these proposals will continue to evolve to remove the elements that would harm the educational mission and affordability of colleges and universities,” Weinman said.

Daniel Ang ’15 voiced his concerns with the proposal in an online interview. As an Amherst alumnus and current graduate student at Harvard University, he criticized a particular component of the bill that would tax graduate students’ tuition waivers as income.

“I think this is unfair for students in research-oriented Ph.D. programs, because most programs are structured like a full-time job rather than an educational program focused on taking courses,” Ang said. “Most of our time is spent working in the labs or teaching. Most graduate students, including myself, entered such programs with the understanding that they come with a full, tax-free and loan-free tuition waiver on top of the stipend we are paid for our full-time work.”

Senate Republicans released their own tax plan proposal several days after their counterparts in the House unveiled their bill. Though this plan retains the endowment tax present in the House version of the bill, the portion of the proposal that allows graduate students’ waivers to be taxed as income was removed. Ang, however, was still frustrated by this development and by the lack of significant media attention surrounding the tax plan.

“This only further illustrates my frustration with how little conversation is taking place about this outside of graduate student and higher education circles — that such a provision can be added or deleted without much fanfare from major news publications,” Ang said.

“This seems to show that our Ph.D. programs in the sciences are not regarded as very significant by Congress, despite that they are the only pipeline by which we produce future scientists and scholars — the drivers of technological innovation and hence economic competitiveness,” Ang added.