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.