By Cynthia Littlefield, Vice President for Federal Relations, AJCU
Tax Madness on Capitol Hill
On Thursday, November 16, the U.S. House of Representatives passed H.R. 1, the Tax Cuts and Job Act, by 227-205-2. This marked a historic moment in Congress considering that a tax overhaul of this magnitude had not been accomplished since 1986. H.R. 1 altered the corporate tax rate from 35% to 20%. The justification for the corporate tax reduction was based upon the trickle-down economics theory, which posits that lower taxes would produce more new jobs. Individual tax rates also changed to three main rates. Many individual taxes, such as state and local income taxes, were eliminated. The mortgage interest write-off survived but with a cap of $500,000. Unfortunately, the cost of this tax bill will add $1.5 trillion to the national debt. The higher education community, including AJCU, opposed the House bill.
For higher education, tax provisions such as Section 117(D), which allowed colleges and universities the option to contribute tuition assistance to their employee’s family members without taxation, have been recalled. Section 127, which allowed employers to give tuition assistance to their employees, was also eliminated. The Life-Long Learning Credit and Hope Scholarship, both of which are rolled into the American Opportunity Tax credit (AOTC), were also eliminated. These cuts will pose a particular loss for graduate students who previously received tax-free scholarship funding for their work as teaching assistants or researchers. Finally, the Student Loan Interest deduction (SLID) was also repealed.
For quite some time, the Senate Finance Committee and House Ways and Means Committee had shown interest in taxing private institutions’ endowments, particularly those over $1 billion. As a result, both the House and Senate bills proposed an excise tax of 1.4% for institutions with large endowments (over $250,000 per student in the House bill; and over $250,000 per student in the Senate bill). In addition to levying a tax on university endowments, the House also repealed the tax-exempt status of bonds that non-profit organizations use to fund libraries, science buildings, etc.
The Senate bill, H.R. 1, is a preferable bill for higher education, as it would save $65 billion in tax eliminations found in the House bill. The Senate bill saves section 117(d), Section 127, the Hope and Life-Long Learning tax provisions, and the AOTC. Unfortunately, the excise tax remains in the Senate bill.
Aside from issues specific to higher education, the Senate bill also threw a curve ball during markup when they eliminated the individual mandate for health care insurance under the Affordable Care Act (ACA). It remains to be seen if this addition to the bill will cost votes on the Senate Floor. The Senate Committee on Finance passed their version of H.R. 1 by party line vote on Thursday, November 16. Congress is in recess due to the Thanksgiving holiday and will return on November 27, at which time the Senate intends to vote on the tax bill. Should it pass on the Senate Floor, both Committees will begin the process of conferencing both bills to create a resolution that both Chambers can feasibly pass. Since President Trump has yet to have a victory for major legislation this year, the tax bill is critical to his agenda.
We will continue to keep you informed on the latest news from Capitol Hill. Happy Thanksgiving to all of our Jesuit institutions, faculty and staff.