As the House of Representatives and the Senate consider a unified tax reform bill, the most important question remains: Do reforms help the middle class? Or are reforms motivated by the “trickle-down” theory — tax cuts for the rich will free up money that will create jobs down the line?
As last week’s election in Virginia demonstrated, voters aren’t buying “trickle-down.” Voters want more money in their wallets now. How tax reform would treat university tuition issues is an excellent example of helping and hurting the middle class. Read on to learn more.
The bad news first: The House bill would treat university tuition waivers as taxable income. Tuition waivers typically are part of a university’s benefits plan. Once employees qualify, they are eligible for free tuition. Sometimes this benefit can extend to spouses and/or children.
My cousin Jeanie worked as a secretary at the University of Pittsburgh for many years. Her job choice was guided in large part by the free tuition for her children (one became a nurse, another a computer programmer). Her husband was a blue-collar phone company worker.
Thanks to the University of Pittsburgh’s offer of free tuition, Jeanie’s children achieved upward mobility.
There are thousands — perhaps hundreds of thousands — of Jeanies in academia who do modest work behind the scenes and use their employers’ benefits to improve their children’s chances for the future. Isn’t a pathway to upward mobility part of the Republican ideal?
Further, it wasn’t a government program that was responsible for their benefits. The benefits were earned through their work. Isn’t that part of the Republican ideal, too?
Taxing tuition waivers puts a burden on middle- and working-class families who either seek self-improvement (something Republicans are supposed to like too, right?) or upward mobility for their children.
Senators who are working on tax reform must to take a hard look at how this new tax could stop thousands of would-be university students from achieving the American dream.
There’s also good news: The House bill corrects a terrible injustice in higher education which allows private colleges and universities to amass huge endowments while charging students high tuition.
Note how school administrators can avoid using the endowment to keep the cost of tuition down. Instead, the endowments earn interest and returns-on-investment (or not, in the case of Harvard, but that’s another story).
The House bill would levy a 1.4 percent tax on the investment income of private university endowments which exceeds $250,000 per student. (Here’s a list of private bastions that could get caught in the $250,000 net.)
The list consists of the usual suspects. Nearly all the Ivies are on the list: Harvard, Yale, Princeton, Dartmouth, Columbia, Brown and Penn (but not Cornell), as well as their cousins: the University of Chicago, Duke, Stanford, Northwestern, Vanderbilt Notre Dame and the like. Wealthy small liberal arts institutions including Amherst, Wellesley and Middlebury make up the rest.
Credit must go to Republican Senator Chuck Grassley who, for years, has been slamming obese higher education endowments with stingy student payouts. Nearly 10 years ago, Grassley and then-Democratic Senator Max Baucus co-signed a letter to 136 colleges requesting details on their endowment funds relative to student aid.
The tax on college endowments would be a wake-up call to institutions which hold their large endowments tightly while hiking up the cost of tuition, room and board for students year after year. Education is supposed to be their mission, not endowment growth.
If, as hoped, the tax spurs the fat cats of higher education to increase student aid significantly, it’s a boon to the middle class. Smart middle-class high school students have been opting for top state universities instead of an elite private institution. Neither their families nor the student (even with student loans) can afford the high cost of an elite private institution. The tax could pry open those endowments — and, by doing so, encourage upward mobility.
Lastly, Capitol Hill Republicans must focus on the impact of tax reform on middle- and working-class families. Some Beltway groups may push for certain provisions, but they can’t guarantee important votes in next year’s Congressional races.
It’s time for Republicans in Congress to dump “trickle-down” tax cuts and increase voters’ incomes in 2018. That’s the way for Republicans to win next November.