The legislators overhauling the tax code have at least one thing in common with colleges and universities: big books.
That’s about where the similarities end. As Republicans in Congress work to push through a massive tax overhaull, higher-education leaders are criticizing many components of the House plan and some in the Senate plan that they say could ultimately hurt their educational missions and make college more expensive for students.
One provision concerning university leaders is a proposed tax on certain private colleges’ endowments. Under current law, colleges and universities have not had to pay an excise tax on their net investment income, unlike other private foundations. In the new tax proposal, private colleges whose endowments meet a certain threshold would be subject to a 1.4 percent excise tax.
The Senate version of the tax bill released Thursday also includes an excise tax on certain endowments.
It’s an issue that Ohio Wesleyan University President Rock F. Jones called “deeply troubling.”
As initially proposed, private colleges and universities whose endowments equate to at least $100,000 per student would be subject to the tax. Under that formula, six Ohio colleges' endowments would be taxed: Case Western Reserve University, the College of Wooster, Denison University, Kenyon College, Oberlin College and Ohio Wesleyan University, said C. Todd Jones, president of the Association of Independent Colleges and Universities of Ohio.
An amendment to the tax bill approved in the House Ways and Means Committee this week raised the threshold on edowment taxes to a total of $250,000 per student. In Ohio, only endowments at Denison University and Oberlin College would be taxed under that amended provision.
Still, taxing colleges’ endowments at all sets a dangerous precedent, independent college leaders said.
“What we know about these kinds of efforts is it never stays where it starts,” Jones said.
Some colleges have come under fire for their swelling endowments when the cost of college continues to surge. Ivy League institutions such as Princeton, Yale and Harvard universities have endowment values ranging from $20 billion to $35 billion, which equates to well over $1 million or even $2 million per student, according to figures from The Chronicle of Higher Education.
But most Ohio colleges aren’t the offenders, said Otterbein University President Kathy Krendl, and use large portions of their endowments to support students.
“(In Ohio) we have very few (institutions) that have the kind of financial resources that I think are being targeted by the legislation,” Krendl said. “Someone suspects abuses, but do you punish all the children when you have a couple of cases?”
Private college leaders in central Ohio agree that a possible tax on their endowments would ultimately hurt students.
“Effectively, Denison would redirect millions of dollars, annually, from financial support for students and our educational mission into a federal tax,” David English, vice president for finance and management at Denison, said in a statement.
Some independent college leaders said they feel the Republican tax proposals single out private institutions, but other provisions are setting off alarms in public and private higher-education sectors alike, including a general concern about a decrease in charitable donations.
Under the House proposal, tuition discounts provided by educational institutions to their employees or dependents would no longer be excluded from an individual’s income. The Senate plan, however, leaves those discounts untaxed.
That means those who work at colleges or universities to give themselves or their children a chance at an education they might not otherwise have afforded would have to pay tax on those reductions.
At Otterbein, nearly a quarter of full-time employees who are eligible for the schools’ tuition-reduction program use it for themselves, or more often, for their children, Krendl said. Often, they’re the school’s lowest-paid employees, she said.
“Part of why they’re here is because they receive that tuition benefit for their children or for themselves,” she said.
That provision of the proposal also would tax stipends or tuition reductions that graduate students receive for teaching or research.
“We certainly don’t want to reduce access to higher education in this country,” said Bruce Johnson, president of the Inter-University Council of Ohio, which represents the state's 14 public universities. “Particularly in Ohio, we’re dramatically undereducated, and it’s affecting economic development in this state.”
Regarding higher education, House Republicans' tax overhaul proposal also would do the following, none of which appear in the Senate plan:
• Eliminate an existing deduction for interest payments on student loans.
• Repeal two tuition tax credits — the Lifetime Learning Credit and Hope Scholarship credit — and keep the American Opportunity Tax Credit, which provides a maximum credit of 2,500 per year for higher education expenses such as tuition fees and course materials. The proposal also would make that credit available for a fifth year at half the rate of the first four years.
• Make employer-provided education assistance taxable. Such assistance is currently excluded from income.
• Take away institutions' access to tax-exempt savings bonds for higher-education expenses.
Collectively, these provisions either hurt students directly or would force colleges to pass costs along to them, higher-education leaders said.
“(The) provisions related to higher education have the impact of increasing the cost of college for students at a time when virtually all of America and all of our political leaders are publicly concerned about the increasing cost of college,” Rock Jones said. “Yet this, as a matter of public policy, would force college costs to increase.”