GOP tax bill would tax tuition waivers for grad students
chronicle.com
chronicle.com
It's also important to note that this would only affect in-demand programs who can afford to pay stipends and provide waivers (engineering, computer science, etc); we're not talking about disincentivizing future history professors (who generally pay their own way with loans), but high-performing engineers working on challenging topics.
This change will absolutely not increase tax revenue; it might incentivize schools to reduce tuition costs (a laudable goal). More likely, it will drive citizens out of graduate programs (where we already make up a single-digit percent), and further promote graduate school as a pathway towards citizenship (as this latter group is extremely price-insensitive).
But that won't happen at all.
this would shift my effective tax rate from 8.4% to 37.0%
I'm neither the OP nor do I know about his particular situation, but assuming a fairly generous stipend of $30,000
- Standard deduction is $6,350
- Personal exemption $4,050 x 3 (self + 2 kids) = $12,150
- Taxable income is $11,500
- Of that, it's 10% on the first $9,325 + 15% on the rest (up to $37,950), for a total of $1259. That's about 5%, not including state taxes.
Now, add in $40,000 of "benefits", most of which are not actually beneficial. Taxable income is now $51,500 and the total federal tax is about $8,614, which is a pretty substantial chunk of the 30,000 actual dollars he gets.
(Numbers from here: https://www.forbes.com/sites/kellyphillipserb/2016/10/25/irs...)
To make matters worse, a taxable income of $51,500 would make OP ineligible for some credits/deductions. For example, it's well past the EITC phase-out.
Yeah, it is going to hurt grad programs, but no current student is going to have their already pitiful stipend get lessened (think 30k/year in Boston, after 'tuition' takes it's cut), the programs will take the hit for the current students. But the tax is a good thing, as it'll finally reveal the shit that is grad life.
If it goes through, grad programs are about to be a LOT more competitive. Whatever the increase is in tax, that is how many less students get taken in (averaged over all states, things get complicated).
Things at UCLA, MIT, and other big metros are already very tight for grad students, 4 to a 1 bedroom, and barely any $ for needed beer on Friday. It's unlikely the funding will improve at all to begin with, so future students will still be haggard, but there will be less of them.
In talking with them, if the schools don't pick up the costs, it's time to unionize, as they have no other options. Yeah, it'll nuke their careers, get them kicked out, but it's that or quit as it. What do they have to loose?
Keep in mind also that these degrees typically go on for 6 or 7 years. (The average at my [generally well-regarded] institution is creeping up from 6.5 to 7.)
Taking on $200k of debt to finish a PhD is going to make quite a big difference ten years down the road. (If your school's tuition is $50,000 a year, that's what you're looking at.)
As for me, if this happened and my school didn't make up the difference, I'd finish elsewhere.
The problem with any tax deduction is that it devotes more capital to it than it would otherwise, and taking it out will always leave some out. Its basic microeconomics.
Every time there is a proposal to eliminate a specific deduction, credit, or loophole, special interest groups crawl out of the woodwork to fight it tooth and nail.
FWIW, in 2011 the top 0.01% earned 5% of national income, the top 0.1% earned 10%, and the top 1% earned 20%. Source: http://ritholtz.com/2011/10/forget-the-top-1-look-at-the-top...
In 2016 the top 25% earned 51% of national income. Source: https://www.statista.com/statistics/203247/shares-of-househo...
Gifting when dead you aren't taxed until 5m or 10m for married. The GOP tax plan doubles that to 10/20m and then removes it after 6 years.
The estate tax was already a huge benefit when compared to the gift tax. What would be nice is if they could up the amount on the gift tax rate if they aren't going to collect any tax on gifting after death (inheritance). This could free up money that will only be in an estate and not used for years maybe even decades.
When you compare the gift tax when alive to the gift tax after death (the estate tax) it is already a massive benefit.
Basically then any money you receive or earn is taxable except loans and gifts up to the gift tax limit, all other money movement is taxed.
Of course winnings are still taxed at normal rates because that is income not gifted per se, I guess I was conflating the two. Example: If you win a car you owe taxes on the whole thing.
So essentially it is the same limit as the estate tax, so I wonder if that also doubles and also goes away in the tax bill.
The Clintons, Kennedys, Romnys, Bushs, etc...
http://time.com/money/4344981/hillary-clinton-estate-plan-ta...
https://www.forbes.com/sites/carlodonnell/2014/07/08/how-the...
http://www.wealthmanagement.com/wealth-planning/unlocking-mi...
Heck, even Noam Chomspky has used estate planning to avoid paying the estate tax.
https://www.hoover.org/research/noam-chomsky-closet-capitali...
The process of filing taxes is separate from how complicated the tax code itself is.
And to be honest, you don't need to pay hundreds of dollars to anyone in order to file taxes in the US. In fact, you can file your taxes using a form that fits on a single sheet of paper.
You may want to opt for one of the other methods of filing, if you qualify for special deductions that might significantly reduce your tax burden, but most people already qualify for the option that takes "a few minutes".
The difference between that and filling out a 1040EZ is negligible. It takes as long to write out a 1040EZ as it would to properly verify the information on one that's already filled out for you.
For people who want to utilize the more complex deductions available - there's no way that the IRS could do that for you. Contrary to popular belief, they don't have sufficient information to do that until you give it to them, and quite frankly you wouldn't want them to have access automatically to all of that.
this will never happen
The problem is, the IRS has no incentive to help minimize your tax. If you really have nothing to deduct, that might not be so bad, but I would have more faith in any of the existing free short-form filing services that already exist.
You don't. Your employer does [+], because they are responsible for (for the majority of traditionally employed folks) managing your tax returns for you. The prices are, indeed, in the hundreds of dollars per year.
If you do something exotic in Japan, like (to pick an example entirely randomly) sell bingo card creation software over the Internet, you will get intimately familiar with the 青色申告, which is almost exactly as much fun as a US tax return.
My personal tax compliance cost for last year on the Japan side was ~$2.5k; it's cheap at the price because doing a full return given my situation would likely have eaten a solid week.
[+] There are some economies of scale here, but a startup in Japan should budget several hundred dollars for payroll administration, per month, plus another lump-sum due in December for the spike of work caused by the end-of-year adjustment (which is not a tax return per se, but is the closest thing most Japanese people have to a tax return).
There are some irreducibly complex questions in tax, such as the surprisingly difficult "What is income, really?" and the related follow-ups "What type of income is that income given that we've decided we want to treat them differently?" and "When exactly did that income happen, given that we've decided we want to run taxation in an other-than-continuous fashion?" These questions are complicated and nuanced because the economy is complicated and nuanced.
What can be done to simplify US taxes isn't a 1 sentence idea ... Unfortunately, having to be cheap on sophistication and explanation is a limitation of the internet discussion format and people's habituated attention spans for it.
Anyway, for a deep dive, I recommend this book by TR Reid who did a longitudinal analysis of tax systems across the OECD, traveling to the countries and interviewing hundreds of people. He gives things a fair play:
https://www.nytimes.com/2017/06/23/books/review/a-fine-mess-...
Here's his commonwealth club talk for people who only want to give it an hour:
https://www.commonwealthclub.org/events/2017-04-13/journalis...
Again, pleasure to see you and thanks for your time.
That said, I'd be all in favor of eliminating all these special tax deductions in favor of reducing taxes if it streamlines the federal tax code and prevents tax dodging and cheating. The idea of using taxes as a stick and carrot just leads to abuses (at least the carrot side of things).
Taxes should mainly be used to fund the government, and ensure that things with huge negative externalities (e.g. smoking, environmental pollution, etc) are paid for. Taxes themselves shouldn't be part of a giveaway. If we need to direct funds to a certain part of the economy the government should just do it in a transparent way, such as offering grants to graduate students.
Part of the economic growth after that was surely the shift in investment from tax shelters to much more productive investments.
http://www.newsweek.com/republicans-believe-college-educatio...
This is interesting, in part, because universities have been left leaning places for some time, and republicans until recently still saw them as a net positive.
Universities are a net positive, of course - the research at universities is amazingly valuable. UCSF has a negative effect on America? Woah. Do they actually know what goes on in the chemistry, CS, or physics department at Berkeley?
Unfortunately, I believe that there is some merit to the notion that universities are becoming intolerant and actively hostile places toward conservatives and republicans, though I am neither, myself. And that stuff makes for great headlines - I can believe that something has been blown out of proportion on Fox News while agreeing that it is a legitimate concern.
These are indeed waivers - generally speaking, they're used for three things:
1. To prevent the state from paying the state to educate a graduate student by waiving tuition that would be paid from a stipend, etc.
2. To acknowledge that graduate students must remain enrolled in a program for several years while working on research, but aren't taking classes and probably shouldn't be paying tuition. reply
3. To partially adjust graduate students who have no chance of getting in-state tuition (i.e. foreign students) to the in-state rate so that it's possible to recruit grad students.
Almost always the answer will be yes. We need a simpler tax system. This is coming from someone who will be net-negative from these changes. I can't help but support it.
That being said, it's easy to predict the number of people taking the standard deduction is going to go way up.
Yes higher edu should be accessable. However, that doesn't mean everyone is higher edu material. Again, prices increase along with demand.
Perhaps I missed it but the article doesn't mention the quality of higher edu, just the quantity. Less students means lower revenue, lower alumi fund, etc.
All that said, it's only a matter of time before the higher edu system is (pardon me) disrupted. In ten years time these deductions are likely to be close to meaningless anyway.
Also, if these goes to students for edu, how is that not a form of subsidy? I'm not being snarky. I just don't - yet? - follow your reasoning.
That said, I do (slightly) disagree with @Fomite. These high (nominal) tuition rates do subsidize the university because they can be charged to outside funders, but this is very, very different from subsidizing the students directly.
The idea that graduate students are receiving too much largesse at the tax payer expense, though, would be hilarious if it weren't so scary.
But it's important for a number of reasons that you remain a student. It allows access to student services, you maintain full enrollment so student loan related repayment things don't trigger yet, you're eligible for student health insurance, etc.
So you need to take whatever a "full load" is, and tuition is billed accordingly.
Except the university knows this is silly. You're not taking classes with instructor time, or in need of a classroom, TAs, etc. So you get a tuition waiver.
Basically, the sum total of this is to allow for an accounting workaround because there's limited ways to express "You're a full time student taking no classes".
So, what stops Harvard from setting a zero tuition for graduate PhD students? In many fields, STEM especially, grad students are really valuable for the extremely inexpensive labor they provide, not for tuition checks.
Public universities typically charge lower tuitions, and even then (well, at Berkeley at least), my experience was that it isn't hard to get a tuition waiver and become a TA or RA. So, just do away with graduate tuition for PhD students.
The big casualty, I suppose, would be academic masters students, since those degrees actually are tuition based cash cows for universities, including Stanford. Corporations typically underwrite the tuition, and the students are pretty low maintenance. But I suppose they could create an M.Eng for the corporate students, and an M.S. for the academic students, and charge higher tuition for the corporate program.
Another factor, I suppose, is law, MBA, or Med students who get tuition waivers. Not sure what they'd do about that.
Just a couple of thoughts, but my guess is that the top privates will find a way around this.
Yes, they do. But they receive a full waiver, and that waiver is not taxed.
The proposed tax bill amounts to a several thousand dollar / year increase in the tax load on graduate students, who typically make less than 30k/year.
> So, what stops Harvard from setting a zero tuition for graduate PhD students?
We'll see what clever accounting universities come up with, if any.
But indeed: a $Nk pay-cut could end up having a pretty devastating impact on academia.
That would remove the option to occasionally charge the tuition, but research PhD programs, especially in STEM at elite universities? Tuition from PhD programs must be close to irrelevant.
1. That would mean redefining enrollment. What if a PhD student takes a class that involves instruction time during their research period - as I did, and as some of my students will likely do?
2. The money used to pay the instructors for PhD-level classes, of which there are some, has to come from somewhere. And for many universities, there is $0 that is "irrelevant".
* I'm a professor and I write a lot of proposals to fund graduate students.
For example, my first two years of grad school were covered by an institutional training grant, which paid for my tuition, stipend, and books. The next year was paid for by private fellowship (thanks, Pfizer), which covered pretty much the same things--and a very large coffee mug that I still haven. Subsequent years were paid for by a combination of other training grants to the university and research grants to my advisor.
This adds up to some decent money for the university, especially since PhD students typically take only a handful of classes–and these seminars are fairly cheap to put on.
My impression is that the humanities are a bit different: grad students are funded by the university, but also expected to do more TAing (etc).
I certainly do agree this sounds like a much more complicated problem than a line item that can be hidden when things are internal. Just wondering what loopholes might work.
What this is meant to correct, as noted elsewhere, is that PhD students still have to be enrolled in classes while working on their dissertation, at least to some extent - and class enrollment means tuition. Full time student status is important for many, many things like health insurance and student loans.
These waivers are an acknowledgement that those classes aren't actually using space, instructor time, etc. so it would be silly to charge them tuition for it.
What's being proposed is essentially charging students for a book keeping adjustment.
Hilariously, I think it will be harder for the top privates. Many states have clauses to prevent tuition being spent using state money so that the state doesn't end up effectively paying itself, which may still work even if waivers themselves go away.
The privates would have to figure out how to define full enrollment but not paying tuition (and for some portion of a PhD students should be paying tuition, via some mechanism). And that can get tricky...
Typical, really. Grad students really get a raw deal already, and rarely receive more than a stipend for the crazy hours they put in trying to further education and the sum total of human knowledge. But let's make life harder on them; shame, shame, shame...
Instead, the students are funded by training grants (to the department or program), and as RAs on grants to individual faculty members. These overwhelmingly come from federal sources, so the net impact on the budget is likely to be zero: these grants would need to increase to cover the taxes, which would then go right back to the feds.
I could get behind funding fewer grad students and using that money to actually do some research instead, but I think asking grad students to absorb a $3,000 pay cut on a $20-30k salary is pretty harsh, especially since many of the "tuition" payments don't cover an actual class.
So tuition gets waived, and they don't get taxed on a "gift" that's entirely for handling an administrative process.
Sounds like a subsidy to me.
This would be like taxing you because I asked you to hold onto a $20 bill for me while I reshuffled my wallet.
This is a just a significant decrease in research funding that is, by default at least, implemented as a substantial tax increase on grad students (those bastards...?), who now pay tax on 40k/year of tuition for literally imaginary courses.
I agree the situation is awkward and stupid, but the material effect is what matters. Without a corresponding increase in science and education funding this is basically an enormous cut to science funding and undergraduate education funding. And it's one that is by default shouldered exclusively by people making 20k / year.
It's eating the seed corn. Quietly, but it's there.
There is no actual income being made. This is imposing a tax on something that no one actually gets! It's an accounting procedure used by Universities so they can meet the requirements of you being a student by law.
I am a PhD student. My tuition of $30,000/year is waived by the University of California since I take no classes and am purely doing research. I need to be a student for various tax purposes for both the University and myself. If the money from my waiver was taxed, I would somehow have to come up with an extra $10,000 out of nowhere! Where do I find that money? My PhD is my job. The government is not funding anything, and I feel you're using that terminology purely to muddy the issue.
To be clear, I don't much care for your argument here. Regardless of your ideological concerns about the ideal way to tax stuff, this policy clearly hurts people who are already in a precarious financial position. It will have remarkably negative effects for students like me. I will simply have to drop out, and all of the domestic PhD students I know in STEM will as well. We can't afford to take out loans for taxes...
This policy has a clear goal. It's impact is what matters. Simply demanding that the tax code be simplified is in this case ludicrous. You're really missing the forest for the trees here - this effectively kills all STEM PhDs in the United States. It's impact would be devastating.
> I need to be a student for various tax purposes for both the University and myself.
That sounds rather...Rube Goldbergian, doesn't it? Why do you think that is? That the university has to charge you a fee, and then waive it? Could it be that they are avoiding some other law, or regulation that is there, and that actually that law is the one that ought to be changed? Does it make sense to simply layer bureaucratic workarounds on top of each other? I'd say no, but some people like spaghetti code, I guess.
> This policy has a clear goal. It's impact is what matters. Simply demanding that the tax code be simplified is in this case ludicrous. You're really missing the forest for the trees here - this effectively kills all STEM PhDs in the United States. It's impact would be devastating.
No it wouldn't. Literally the only thing that would happen is universities would either:
a) Change the absurd "we charge you tuition and then waive it" system.
or
b) Offset the cost delta via a stipend of some kind.
It would not kill STEM, or any other kind of PhD program in the US, and it definitely wouldn't simply be passed on to students. If it did anything, it'd shift the balance more in favor of STEM PhDs and away from other, less remunerative degrees. But I doubt it'd even have that effect at the margin.
And finally, any time the government gives a tax credit, they are funding something. Tax credits are identical to government checks. Understanding this is absolutely essential to thinking about politics. When you donate money to a charity and receive a tax deduction for doing so, the federal government is effectively matching some 30% of your contribution. The reason the government chooses to fund things in this way is that it is more palatable to people. Just as you are doing now, they don't see 'tax credits' as an expenditure. But the truth is that taking money out of revenue collection is the exact same thing as writing a check. And this confusion among the general republic is a prime contributor to government waste and economic inefficiency generally.
EDIT: I should add, to be clear, that I don't think you or any PhD student should actually bear the burden of this tax. I'm saying that the tax policy being the way that it is is a bureaucratic workaround for a problem that is better solved another way, and it ought to be solved in that way, rather than addressed through tax policy.
Pot, meet kettle. If this is the case, and if it's true that there's lots of "Rube Golderbian" infrastructure at play, why not implemented this policy -- in the short term with a long-term phase out -- as a direct budget cut to the NSF? As opposed to a 20% tax hike on people making 30k? The end effect on the national budget would be the same, without introducing lots a huge budgetary refactoring project.
> a) Change the absurd "we charge you tuition and then waive it" system.
But as a software person (?), you must understand that "ok make this big change to this complex system" isn't always a reasonable request given a 1 year timeframe.
In particular, I'm going to go out on a limb and conjecture that your edit is probably the only thing people actually care about. Everything else is missing the forest for the trees.
Because I don't think we should increase taxes on people making 30k 20%. I think we should eliminate cruft from the tax code. This is cruft.
> But as a software person (?), you must understand that "ok make this big change to this complex system" isn't always a reasonable request given a 1 year timeframe. > In particular, I'm going to go out on a limb and conjecture that your edit is probably the only thing people actually care about. Everything else is missing the forest for the trees.
Sure, it's certainly possible that making the change immediately is the wrong move. I'm not sure I see the evidence for that in this particular case, but yes, sometimes that is so.
When thinking about tax policy, it's important to consider now how something makes you feel, and not the first-order consequences of the change, but the equilibrium consequences of the change. If you eliminate this loophole would grad students actually pay more? I very much doubt it. The university would find a way to equalize the price, either by modifying the silly tuition policy (a simple fix is make tuition $1 and then waive that), paying it for you, or by some other means.
My guess is that the change will also have no net effect on revenue collection, which makes it fairly worthless from the perspective of its authors, who are trying to justify tax cuts in other areas. But I still think it's a good idea, because anything that eliminates cruft from the tax code is a good idea, provided it doesn't cause undue harm elsewhere, which I think it is highly unlikely to in this case.
If it is indeed simply a 'book keeping' exercise, then what it really is is an attempt to subvert some other policy. I'm not sure what that policy might be (student loan terms, perhaps?) But whatever it is, it's that policy that should change. Not tax policy.
It's an attempt to recognize the problem of needing students to be fully enrolled to be defined as students often by law.
It's far easier to put in a tax waiver to take care of the consequences of that than it is to change that policy, at a state level, and figure out all the downstream issues of that - which will also probably impact the tax code.
And that's just off the top of my head.
This is f-ed up, graduate students don't ever see a red cent from tuition payment from RA and TA grants, which is an accounting manipulation by universities.
It's an obscure bit of accounting for an administrative process, that's being used because many people (like you) will nod sagely about "Academia being out of control" without understanding what the mechanisms actually in place are.
This is helping no one but the academic industry and I say industry because it's the schools and their administrators benefiting, not professors. Students aren't getting a benefit, they are just running in place. As early as 2011 I was working in a call center paying 11/hr that only took employees with bachelor's. It's the new high school degree. Masters are next on the list as institutions decide they need to have "the best" and higher degrees are the only way to prove that. There are less jobs in academia as universities push for more and more adjunct professor who get paid peanuts and have no chance at tenure, and the salary is driven down by the tons of students going through school who can't find a job to pay off their loans in industry and spill over to academia to try and make a living.
Student loan debt is larger than any other debt now and there are zero market mechanisms to make sure the risks of it reflect reality. We need to let the air out of the bubble early and in a sustained manner or eventually there will not be enough resources to keep pretending that sending a bunch of kids to the same building for 4 years to learn zero skills that will help them pay off the massive cost of college, and the whole charade will collapse quickly and with disastrous effects.
I think that everyone should go to college because a higher education leads to better citizens, but we cannot artificially inflate the demand to infinite without constraining the price
The function of these waivers is entirely to offset the fact that graduate students working on their research projects need to be enrolled for a number of reasons, but it doesn't actually make sense for them to pay the same tuition as students who are taking up classroom space, instructor time, supplies, etc. So their tuition is waved.
It's entirely a book-keeping exercise. One that the student largely never sees - except now we're proposing to tax them for it.
The problems are not related to each other save for the fact that they both involve the word "tuition".
As for mechanisms?
The first thing I'd address is state level funding of universities. Many public universities have seen their state support vanish, especially after 2008, and during the recovery, that money didn't come back. At the same time, grant success rates have (at best) remained both low and flat over the past decade or so, making it hard to make up that money on the research end of things.
When you take away state support and federal support, literally the only revenue dial left available is tuition increases.
I'd also be all for a merging of practical and liberal arts education such that you can learn practical, profession-oriented skills but also read Chaucer. We have those universities - they're land grant institutions - but I'd like to see an emphasis in that increased.
We also need to address the pipeline from graduate school to jobs outside academia - in my own lab I treat students intending to pursue careers outside academia the same as I do those who want to continue on, and I'm pretty unapologetic about job prospects. I think it's my moral obligation to do so, but it will put me at a competitive disadvantage to larger labs. Addressing that starts at the Chair/Dean level.
You know what solves none of these? Taking a few thousand dollars from doctoral students for an administrative process.
Additionally I understand that the funding didn't come back, but tuition is not the only dial. I have seen what seems like every school increase their administrators overhead, continue to fund unprofitable sports programs, and add luxury amenities to their campus to entice students away from other universities. Schools could cut back, but they don't. They have an unlimited trough of money and no reason to ever cut back.
At this point they are acting as corporations and not institutes of higher learning. If they are acting like a corporation then we should treat them like one and stop dumping money into unprofitable ventures. I will point out that we have other industries that are getting money dumped into them that don't need it that should lose the government funding first, like half the industries on this list[1]
There are better fights to be had, but decreasing demand for education that is unprofitable to obtain seems like a good step
[1]https://blogs-images.forbes.com/timworstall/files/2017/01/jo...
As for "Schools could cut back, but they don't" that will come as a surprise to my frozen salary, and every department in my university being expected to cut their budget for the next three years.
While still being expected to admit the same if not more students, support the programs to help keep them enrolled, and compete for more grant funding.
Edit: sports teams as well. Our basketball team was bringing in more money than they spent so that's fine for the university. However they also spent millions on our football team who lost money year after year. Why are universities in a position where they can increase tuition by 12% in a single year and then still dump money into a losing sports team for the prestige factor? The universities do not seem to be price concious at all except when it comes to professor compensation
Do you have a citation for the several hundred thousand dollar party?
Sports teams are...difficult. I dislike how much money goes to them, but they're a complex thing to value, as both student recruitment and alumni donations are entangled with the athletic program.