James Wimberly commented that he was looking forward to my analysis of the GOPâ€™s â€œassaults on higher education.â€ Well, to some extent, Kevin Drum beat me to the punch.Â However, I thought that it would be instructive to go through Drumâ€™s list and attempt to quantify it using the GOPâ€™s JCT numbers. All page references are to the GOP JCT’s tax estimates.Â Unless noted, the amounts are calculated over a ten year period.Â (I have skipped the doubling of the standard individual tax deduction mentioned by Drum, because itâ€™s somewhat difficult to quantify the effect that this would have on higher education.)
Perhaps the most contentious proposed change, of course, is the 1.4% excise tax on college endowments where the endowments are greater than $100,000 per student.Â Interestingly, however, the actual dollars involved in this proposed change are relatively small, only $3.0 Billion according to the GOP JCT estimate. (text page 74, pdf page 80) The GOP JCT explanation is somewhat disingenuous, justifying the tax by reference to the excise tax on private foundations, like, say, the Trump Foundation. Of course, college endowments have a greater similarity to public foundations, like, say, the Clinton Foundation. My sense is that this is an attempt to pitch to the know-nothing base of the GOP by tweaking the nose of those elite, eastern, educated liberals. However, the list of affected institutions compiled by the Chronicle of Higher EducationÂ reveals that a large number of small, lesser-known liberal arts colleges, many in red states, would be subject to this tax.
Update, November 7:Â According to the Washington Post, this portion of the bill has already been amended to limit the excise tax to institutions where the endowments are greater than $250,000 per full-time student.Â Apparently, this will cut in half the total number of institutions upon which the tax is imposed.Â More details as they become known.
Next, the GOP JCT lumps several provisions together for purposes of a single analysis: (i) interest payments on qualified loans, (ii) U.S. Savings Bond interest used to pay higher education expenses, (iii) qualified tuition reductions provided by educational institutions to their employees, spouses, or dependents, and (iv) employer-provided education assistance, all of which, except for the U.S. Savings Bond provision, are mentioned by Drum. The estimate for all of these, together, is that revenue would increase by $45.1 Billion and outlays would be reduced by $2.4 Billion. (text pages 10-12, pdf pages 16-18)
But Wait, Thereâ€™s More!
There are three existing higher education credit programs, the American Opportunity Tax Credit (AOTC), the Hope Scholarship Credit (HSC) and the Lifetime Learning Credit (LLC). These three programs â€œwould be consolidated into an enhanced AOTC.â€ This is projected to increase revenues by $17.5 Billion and increase outlays by $0.2 Billion. (text pages 8-9, pdf pages 14-15) I canâ€™t figure out whether the use of the word â€œenhancedâ€ in this context means that the GOP members of the JCT (i) flunked English, (ii) flunked basic arithmetic, or (iii) donâ€™t realize that Orwell thought that Newspeak was a Bad Thing.
There are also provisions related to Cloverdale educational savings accounts and 529 plans. The provision that has gained the most notice here is the change to 529 plans that â€œprovides that unborn child may be treated as a designated beneficiary or an individual under section 529 plans. An unborn child means a child in utero. A child in utero means a member of the species homo sapiens, at any stage of development, who is carried in the womb.â€ This, of course, has virtually nothing to do with taxation, but is an ideological nod to the anti-abortion forces. According to the GOP JCT, these changes would reduce revenues by $0.6 Billion. (text pages 9-10, pdf pages 13-14)
Total savings, net, of the above changes: $67.2 Billion or about 3.36% of the cost of the $2 Trillion revenue loss due to corporate tax cuts.Â In other words, the corporate tax could still be dramatically reduced without any direct negative affect on higher education.
8 thoughts on “The Party of Ignorance”
"According to the GOP JCT…"
No!! There is no "GPO JCT". The Joint Committee on Taxation is a nonpartisan organization. (Technically, the Committee, like all Congressional Committees, is composed of members of Congress and is therefore bipartisan, but the analysis is done by the STAFF of the JCT. The staff is completely professional, permanent, and nonpartisan.)
The analysis you quote is from the Majority staff of the Ways and Means Committee. It cites JCT numbers but the language was written by Ways and Means. The JCT description is available at https://www.jct.gov/publications.html?func=startd… (note that this will start an automatic PDF download).
Yes, the JCT is supposed to be a nonpartisan organization. However, the JCT report here was written solely by the GOP members of the JCT staff not the staff as a whole, including the minority staff.
"Perhaps the most contentious proposed change, of course, is the 1.4% excise tax on college endowments where the endowments are greater than $100,000 per student."
It is not clear to me why that should be contentious. Many critics have noted that the Harvard Endowment functions more like a hedge fund than a university endowment: They have nearly $38Bn, and gained an 8% return last year, which means the interest alone could fully fund tuition for every Harvard student in perpetuity, and the principal would keep growing. Yet Harvard keeps raising money, and people keep giving to it, by the billion:
These gifts are of course tax deductible, which means taxpayers are subsidizing Harvard to the tune of nine figures per year. That is, the Harvard endowment functions as a wealth-redistribution system funneling money from ordinary people to the wealthiest.
Meanwhile, the endowment at the University of Florida (to pick a typical public university) is about $1.6Bn, or about $30,000 per student. It will be exempt from the proposed tax, as it should be.
I am by no means normally inclined to give Republicans credit for their tax policies, but this particular item is entirely praiseworthy.
Your criticism has some validity, but I still disagree with the tax, for a number of reasons.
Most important, to me, is that it is a symbolic poke in the eye to the universities – simply a sop to the base that thinks they are no more than hotbeds of radical leftist thought and propaganda, destructive to the "true values" of the country. Symbols matter. I am tired of the blatant anti-intellectualism of the right, and its use to stir up its base.
Second, if in fact the accumulations are unreasonable, I would much prefer rules requiring a certain amount be distributed, as financial aid, increased pay and benefits for lower-level employees, expanded research grants, and so on. (I would include contributions to the local community, but since I live in Cambridge that might just possibly be seen as self-serving.)
Finally, I don't think the comparison to foundations is totally apt. Foundations do not typically have large fixed expenses, large physical plant, or a big workforce. If they have a bad year then they can give out less money. Not so with universities which, I presume, need much more in the way of financial reserves to cover all this.
I made no mention of foundations.
The bill does not target all university endowments – only those endowments greater than $100k/student. The vast majority of public universities, and even most private schools, will be unaffected by this bill. It only targets those endowments which operate as hedge funds with onshore tax havens.
"I would much prefer rules requiring a certain amount be distributed". Exactly. The proposed tax would incentivize distributions.
No, you didn't mention foundations, but the OP does, and the comparison is part of the argument for the tax.
I understand the $100K standard, which I think is even being raised to $250K.
How does the bill incentivize distributions? is there a provision that reduces the tax in exchange for increased distribution?
What "JCT report" are you referring to? When you wrote, "..the JCT is supposed to be a nonpartisan organization," you are (inadvertently, I hope), falsely impugning the professional integrity of the organization.
All the JCT reports are here: https://www.jct.gov/publications.html. They are written by the staff of the Joint Committee on Taxation. There are no GOP or minority JCT staff.
All JCT staff are professionally nonpartisan. See: https://www.jct.gov/about-us/overview.html. Or here: https://uschs.org/wp-content/uploads/2016/02/USCH… which concludes, "The JCT staff does not advocate for or against specific proposals; they may provide analysis of differing tax policy options but not from an advocacy point of view."
The report you posted here: https://app.box.com/s/5cuux3n4s6z6p9lxz5r3kz8ywlz… is clearly labeled at the bottom of each page: "Prepared by Ways and Means Committee Majority Tax Staff."
Right, the GOP staff. I assume that the revenue calculations were made by the professional staff, but the remainder was the product of staffers from only one side of the aisle.
Comments are closed.