Tax Reform & Higher Education
Tax reform proposals under consideration in Congress could have significant implications for Smith College, students and their families—affecting the affordability of and access to higher education nationwide. Proposals advancing in the House and Senate contain a number of provisions that will adversely affect students and educational institutions, like Smith, whose missions are significantly supported by endowment income and whose students come from families spanning the income spectrum.
- Bills in the House and Senate would tax income on university and college endowment earnings, a mandate that would reduce Smith’s overall funding and limit our ability to allocate funds where they are most needed. At Smith, income from the endowment generates a critical funding stream—fully one-third of the operating budget. Specifically, the proposed 1.4 percent tax on endowment income could represent a $1.2 million negative impact on Smith’s annual operating budget. To put that figure in context, it represents the equivalent of the average financial aid award for 30 students every year.
- Versions of the circulating bills target those with student loans, proposing to repeal the loan interest deduction. Currently, alumnae with a modified adjusted gross income of less than $80,000 ($165,000 if married filing jointly) can deduct as much as $2,500 of student loan interest from their taxes every year. Removing this deduction would eliminate an important support currently used by three in 10 Americans paying off student loans.
- The legislation would remove tax exemptions for employee and dependent tuition benefits, increasing the taxable income of many campus employees. Taken collectively, some 113 Smith employees taking courses or receiving a dependent tuition benefit at Smith or another college or university could incur a new annual tax obligation of $465,000 based on current rates of participation.
- The legislation proposes repealing incentives in the tax code that support charitable giving. Charitable gifts, whether large or small, provide critical support to colleges like Smith, especially for financial aid and academic programs. More than one-third of gifts to college endowments are designated specifically for student financial aid.
These measures are strongly opposed by many in the higher education community, including the National Association of Independent Colleges and Universities (NAICU) and the American Council on Education (ACE). If enacted, the bill has the potential to undermine college affordability and jeopardize the future of private and public colleges.
- Contact Your Elected Officials
- American Council on Education: Tax Reform and Higher Education
- ACE, Higher Education Community Launch Contact Congress Initiative for Tax Bill
- National Association of Independent Colleges and Universities: Tax Plan News Roundup
- Council for Advancement and Support of Education: Tax Reform Resources
- PricewaterhouseCoopers: Colleges and Universities Impacted by House Tax Reform Plan
- Wall Street Journal: Should the Well Endowed College Be Taxed? (subscription required)
- Daily Hampshire Gazette, January 16, 2018: Impact of Tax Plan on Liberal Arts Colleges (letter to the editor)
- President Kathleen McCartney: Impact of Proposed Tax Bill on Smith and Higher Education, November 8, 2017