
The GOP Tax Plan Will Destroy Graduate Education - chrisgray1497
https://www.forbes.com/sites/startswithabang/2017/11/07/the-gop-tax-plan-will-destroy-graduate-education/#6ebc79e63d2f
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bklyn11201
My alternate headline: GOP Tax Plan will force institutions to alter graduate
tuition accounting

Tuition waivers are currently used, especially in the science disciplines, to
have outside research grant dollars pay for grad-student tuition. If this tax
plan passes, tuition waivers would no longer make sense and the dollars from
research grants would need to shift. This probably means lower tuition for
certain programs and more money from the research grant going to institutional
administrative costs.

~~~
numbsafari
Exactly.

Personally, I'd like to see a balanced approach: shift some of the money to
increase those laughable stipends into something livable, and put the rest
where it belongs: on admin costs.

The shell game universities are playing is part of the problem. Hopefully, if
this change makes it into the final bill, Universities do the right thing and
don't stick it to their Grad Students.

~~~
test6554
Can you elaborate more on what is going on at universities?

Are you saying that grant money comes in for research, but gets funneled back
to the university through tuition?

~~~
wahern
The default tax rule in the U.S. is that any benefit you receive, in any form,
is earned income and taxable.

Layered atop that default rule are a long list of exceptions, which are
generally categorized as (1) exemptions and (2) deductions.

If you attend a Ph.D program where the advertised tuition is $30k per year,
and you get a tuition waiver (or w'ever it's called), the default tax rule
says that you still earned income because you received a benefit. The nominal
value of that benefit is $30k, therefore the student would need to pay taxes
on that $30k.

Apparently there's an exemption or deduction that excepts tuition waivers from
the default rule, meaning such tuition waivers wouldn't be considered taxable
income.

As part of the GOP plan to pay for corporate income tax rate cuts, they must
discard many kinds of exemptions and deductions to replace lost revenue from
the corporate rate cuts.

To those who say that this is a shell game[1], note that if it was just a
shell game then the change wouldn't have been made. In other words, there's an
expectation that discarding this exclusion will generate more revenue. That
revenue would directly come from students and/or universities, one way or
another.

Universities could lower tuition, but one reason for the disparity between
nominal tuition and effective tuition is that foreign students
disproportionately pay the nominal tuition. Reduce nominal tuition and you
reduce the foreign subsidy for domestic students. Not only does the effective
price of a graduate education go up, but you're likely to see even more
foreign students. Depending on which country you hold citizenship, that's
either good for your career prospects or bad for your career prospects.

[1] All the news reports make a point of saying that the university "pays" the
tuition waiver. It's a distinction without a difference. The student still
derives a benefit, and however the university cares to balance its books (e.g.
with double-entry accounting) is entirely irrelevant unless there's incredibly
esoteric technical requirement to the particular earned income exception. Such
esoteric technical requirements are rare since the 1986 reform as the text of
modern rules emphasize underlying economic benefits and not accounting
practices, as focusing on the latter create more opportunities for gaming the
tax code.

~~~
maxerickson
Getting rid of exemptions and deductions is also "simplification" and
"reform".

I mean, I agree that the plan is focused on paying for corporate and high end
tax cuts, but how do you do tax simplification if special interests are all
off limits?

~~~
nindalf
You don't. The complexity of the tax code isn't a bug, its a feature because
people don't want a simple code, they want a simple code _with_ all the
exemptions they're likely to use.

------
JonFish85
No, it won't. The sensationalism all around is just infuriating; I know it's
basically politics in a nutshell, but this sort of crap is getting really old.
It's not going to destroy higher education; it might raise the bar a bit of
who goes to graduate school, and force schools to do more to entice top tier
talent to come to their school, but it's not going to destroy it.

~~~
sorrymate
Can you provide any specific details on how the new suggested tax plan will
raise the bar? It seems as though we should be encouraging Graduate and PhD
students. It seems as though it would force additional students into taking
out loans if their tuition is not waived?

~~~
JonFish85
If the only thing standing in the way of a student continuing on Graduate or
PhD studies is grant money, they shouldn't have trouble finding a job. In that
case, if the university wants to attract those students from the private
sector, they'll have to find a way to increase a student's stipend to cover
these expenses. At top-tier schools where tuition is the highest, their
endowment is likely large enough to support this move.

Alternatively, the schools could adjust what they charge students for tuition.
As the article states, the cost of a year at Princeton's grad school is
$49k/yr. Somehow I suspect that this sticker price is not tied to much in
terms of their cost, but if it means charging less to students if that allows
them to attract top talent, they could probably do that as well.

In terms of raising the bar, to me this would mean that if graduate schools
want top talent, they'll have to find a way to do it: raise the stipend, lower
the cost of tuition or something else. In this case, a very bright student who
can't afford graduate school will either have to go into industry or the
schools will have to find a way to keep them.

On the downside, if we follow the pattern of the last 30 years, the reaction
will go something like:

1) Students struggle to afford college tuition

2) Government steps in to make large cheap-ish loans available beyond what
might be reasonable ( _).

3) Students now have access to loans to go to any school they want

4) Colleges notice that they can raise price because students don't price shop

5) Colleges raise their prices

(_) They're government backed loans that are difficult to discharge, mostly
because there is nothing to repossess and interest rates would likely go
through the roof if students could graduate and immediately discharge their
loans.

~~~
yardie
> 3) Students now have access to loans to go to any school they want

> 4) Colleges notice that they can raise price because students don't price
> shop

When has this ever been true. I applied to school many schools back in the day
and it usually came down to finance and then reputation. Whichever school
granted you the most tuition and living expenses, and wasn't steaming pile of
shit is where 99% of my working class peers and I attended.

~~~
JonFish85
Speaking only anecdotally, friends who complain the most about college loans
are the ones who took out massive (~$100k) loans to go to private schools.
With some exceptions, private schools are likely not to be worth the extra
money; problem is, loans are due later, but awesome "dream school" is now.

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heyitsguay
The misinformation in this thread is astounding. This is targeting _graduate
student tuition waivers_ : waivers given to students who are usually also
receiving a stipend, who are almost never taking out loans to manage degree
costs. It's likely that there is a better way for universities to quantify the
net movement of money between student and institution, but to have lowly-paid
graduate students bear the brunt of the change is unconscionable.

~~~
luckydude
Uh, it worked the same way for Masters degrees at Wisconsin (source: I have
one and this tax "reform" would have screwed me).

I don't understand your undergrad comment, the tax bill doesn't change
anything there so far as I know.

~~~
heyitsguay
You're right, it would've been more accurate to just say "graduate" instead of
"PhD", I'll edit it. I don't think I mentioned undergrads though.

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lewis500
I don't understand this. During my PhD my "scholarship" was just basically the
university choosing not to charge me money. It's not as though I sat down and
set on fire $20k worth of paper every year. So now they have to pay tax on to
the amount they would have otherwise charged me? Isn't that kind of a
hypothetical concept? Like, can't they say, "Oh the tuition for the civil
engineering PhD program is now zero"? Virtually no one in my program had ever
paid tuition before.

Maybe what they could do is claim we are first and foremost employees and that
the PhD is a certificate of on-the-job training. Presumably they are not going
to charge Facebook for the training courses they give their employees.

~~~
rayiner
The proper way to view it is that the university is giving you an "in kind"
benefit, in this case a free education. "In kind" benefits are taxable. An
employer cannot say, for example, that providing a free apartment to an
employee is not compensation, because the employer is "simply choosing not to
charge the employee rent."

~~~
candiodari
But obviously this is one variable that can be highly fudged. They can provide
apartments at 1/3 the normal cost, but claim to be charging you rent. Or, if
you want to go further, have those rooms "available" for guest faculty and
you're just holding the key.

Or, well, this is how it's done in some places in Europe, where benefits "in
kind" are "taxed". Except they're not taxed. You can't make that happen.

~~~
rayiner
You can fudge a bit but not that much. In an audit, it's pretty easy to notice
if your company is leasing out employees an apartment for 1/3 of market rate.
Few companies are going to risk tax fraud charges for that. It's particularly
difficult in the case (as with universities) where you're literally in the
business of selling the same product a particular price to other people.

------
bo1024
Despite all the comments, it seems hard to gauge what would happen if
something this insane were to actually pass.

Hopefully universities would find a way to "creatively adjust" their
accounting such that graduate students are paid the same net amount as they
were, but universities are big bureaucratic institutions and slow to change or
adapt.

I'll only speak to what I know, which is fully-funded PhD programs in STEM. If
this change hit students directly, it would be devastating.

If you look at top private institutions in the USA, you might notice that the
socioeconomics of the undergrads skew rich-rich-rich but the STEM PhD students
come from all walks of life (and countries all over the world). That's because
the programs pay them enough to live on, albeit barely in many cases. If that
fact goes away, so will the students.

Now maybe universities will be able to adapt and either pay enough to make up
for it, or change their accounting. But most likely there will be a dichotomy
where the richest and most successful programs have the easiest time
negotiating the change while the others get hit hard.

~~~
bklyn11201
STEM PhD students provide USA universities with inexpensive teaching labor,
prestige, future donation revenue, future patent revenue, and the labor to
complete research grants. The best research institutions will move quickly to
keep the graduate system in place.

------
Overtonwindow
I think this is a good thing. Graduate education is grossly overpriced,
because institutions know the government will help pickup the tab.

~~~
taylodl
I don't follow your line of thought. How is the government picking up the tab?
The government isn't making any payment back to the institution.

~~~
turc1656
I believe what Overtonwindow meant was that the cost of education has gotten
out of control primarily because whenever the government guarantees debt (
_cough_ housing _cough_ ) it creates a perverse incentive where the lenders
profit by bigger loan values and the schools profit by jacking up the cost of
their service for which the loans are issued.

Essentially, there is far less of a check and balance on the price of the
good/service. Whenever you have true cost hidden or put way down the road it
tends to significantly increase the total cost. Also, there was a hard limit
on the cost of education previously because it used to be hard to get a loan
for school. People had to actually save money for it, get a scholarship, or
pay as they went along. There was a natural limit based on the available money
people had available and were willing and able to use to purchase education.

Less than a decade ago (2008/2009) the average in-state tuition was $6,585 for
a public school. I graduated in 2006 and this number seems accurate. My
undergrad tuition in 2006 was something like $5,500-$6,000. Based on data from
the College Board, the inflation factor for 2008 is ~9.5 (against the
reference value in 1978 of 1, when the numbers begin). Which means the average
cost of tuition for in-state public schools was $693. The minimum wage in 1978
was $2.65. It would thus take 262 hours to be able to earn enough to pay that
tuition. That averages out to a mere 5 hours a week! And that's the worst case
scenario (making minimum wage). Using the 2008 numbers, the minimum wage was
$6.55, so it would take 3.83 times longer to pay tuition (1005 hours)! And
that was nearly a decade ago - it's gotten far, far worse since then. Viewed
another way, if the cost of college was subject to the normal inflation that
the rest of the economy average, that $693 would be a mere $2,737 for 2008.

~~~
taylodl
In my state the state legislature has repeatedly and dramatically curtailed
state funding for the public colleges, which of course has led to tuition
increases. Then the state legislature capped the percentage in-state tuition
may increase on an annual basis. Now the public schools take far fewer in-
state students and instead focus on out-of-state and foreign students who are
able to pay the pretty darn near private school tuition.

Education is a global commodity and the pricing is set by demand. The fact is
other governments are assisting their best and brightest to attend American
universities, which are considered amongst the best in the world, while our
government is making it harder for our best and brightest to attend our own
universities. This doesn't seem like a good strategy for America.

------
jiqiren
Destroy is certainly too strong of a word to use.

This tax plan would likely mean more student loan debt. That's also bad - but
it isn't going to destroy graduate education.

~~~
kd0amg
If I can't make rent doing this, I am unlikely to keep at it.

~~~
nategri
PhD programs already have insane attrition rates. Not difficult to imagine
that any factor that makes it even _slightly_ more untenable than it already
is could have a big impact.

------
wbraun
A similar analysis has been circulating mailing lists at MIT over the past few
days and all the grad students are already freaked out by this.

As someone who is in the process of applying to phd programs and has already
made peace with the lost earnings this really sucks. If this provision makes
it into the tax code I will have to strongly reconsider my plans, as will many
other students.

~~~
eli_gottlieb
It might be better to start the program, and then, if the finances of all
academia get nuked by Congressional Republicans, your adviser can help you
find some place outside the USA to transfer or something.

------
blakesterz
So the plan is...

>> Under the new GOP tax plan, however, those tuition waivers would be taxed
as regular income...

Sensationalist headlines aside... Why is this being targeted in the new tax
plan? Usually I can find something with a quote from someone that explains.

~~~
awinder
The reason is to balance rate decreases at the top percentile, to decrease the
corporate tax rate, and to finance lost revenues from dropping the estate tax.
The rest of the reasons people state are needlessly obtuse or purposefully
deceptive.

There’s one mathematical reason, it’s because this bill can not increase
deficit past a certain amount, and so to balance giveaways to the rich we must
demand more of every other income quintile.

~~~
hcknwscommenter
Bingo. I think you hit the nail on the head here. To offset the decrease in
revenues expected from the upper quintiles (and the corporate tax), they need
to raise revenues elsewhere. This is not a change that can be addressed by a
simple accounting trick.

------
rayiner
Under the logic of the tax code, tuition waivers should obviously be taxable.
The University is basically paying for graduate student labor with a vastly
below-minimum wage stipend, along with a very valuable free education. "In
kind" benefits (such as the use of an apartment) provided by an employer are
generally taxable. That doesn't mean tuition waivers _should be taxed._ It
just means you have to be intellectually honest and call them what they are: a
tax break.

But viewed in that light, maybe they're not so defensible. While a small
minority of graduate students may come from the lowest income backgrounds, on
average they're highly educated and privileged. So in essence, it's a tax
break for among the most advantaged people. Why is that "fair?"

~~~
tanderson92
At the same time, repealing the tax break hurts those least privileged the
most. Why is that making things more "fair"?

~~~
rayiner
Graduate students, as a class, are not the "least privileged." Most are from
families that are pretty educated and well-off to begin with.

~~~
tanderson92
That is true, and is unrelated to my comment. I was referring to the least
privileged members as a subset of that class. I know plenty of PhD students
who were the first in their family to attend college, or graduate high school.

~~~
rayiner
It depends on what you do with the extra revenue after you repeal. Repealing
it and using the revenue to lower corporate taxes may or may not be fair
(maybe it creates more jobs for lower-income people, who knows). Repealing it
to increase the earned-income tax credit would almost certainly be fair. You'd
be getting rid of a tax break that disproportionately benefits more privileged
people, and expanding a tax break that disproportionately benefits less
advantaged people.

~~~
tanderson92
> Repealing it to increase the earned-income tax credit would almost certainly
> be fair.

False. The IRS states that the EITC only applies to those over age 25 if you
do not have a qualifying child (many graduate students fail both). Also, some
graduate students fail the most basic tests for EITC-eligibility since they do
not have "earned income" despite having taxable income.

Another thing is that the tuition being added to AGI means every single
graduate student will be ineligible for the EITC just on AGI grounds.

Anyway the plan uses it to fund corporate tax cuts so your hypotheticals don't
really apply -- we have a concrete bill to discuss.

See: [https://www.irs.gov/credits-deductions/individuals/earned-
in...](https://www.irs.gov/credits-deductions/individuals/earned-income-tax-
credit/claiming-eitc-without-a-qualifying-child)

[https://www.irs.gov/credits-deductions/individuals/earned-
in...](https://www.irs.gov/credits-deductions/individuals/earned-income-tax-
credit/do-i-qualify-for-earned-income-tax-credit-eitc)

~~~
rayiner
The fact that graduate students may not be eligible for the EITC is
irrelevant. The point is that the people who _are eligible_ for the EITC are
statistically much more likely to be underprivileged than graduate students
are (as a group).

As to the plan to use the tax break to fund corporate tax cuts, it depends on
economic conclusions that are beyond my understanding. I tend to be of the
mind that we shouldn't tax corporations at all, and focus on taxing
individuals.

~~~
tanderson92
Since you acknowledge the increases in the EITC are unhelpful to these
underprivileged students you are then saying it is acceptable to raise taxes
on the underprivileged portion of a largely privileged group because it's
statistically hard to tease out the difference. That's...heartless?

Balancing it out in other members of the lower income class doesn't really
help, IMO. You are penalizing people who are underprivileged for trying to
improve their lot in life and move into a higher class with one of the best
means possible: higher educational attainment.

It's obscene.

P.S. your point about taxation of corporations is interesting too: corporates
shouldn't be considered people for purposes of taxation but can participate in
political activity and speech (political donations) using rights of
individuals. Nice deal, if you can get it.

~~~
rayiner
> Since you acknowledge the increases in the EITC are unhelpful to these
> underprivileged students you are then saying it is acceptable to raise taxes
> on the underprivileged portion of a largely privileged group because it's
> statistically hard to tease out the difference. That's...heartless?

No, it's utilitarianism. A tax break that disproportionately benefits the
educated and well-off shouldn't be preserved just because a small minority of
the people it benefits are not well off. Better to eliminate it in favor of a
tax break that primarily goes to disadvantaged people.

> You are penalizing people who are underprivileged for trying to improve
> their lot in life and move into a higher class with one of the best means
> possible: higher educational attainment.

Someone who has gotten into graduate school necessarily has an undergraduate
degree, and probably can make a decent living. At that point, it's better to
focus government money on people who aren't so lucky.

> corporates shouldn't be considered people for purposes of taxation but can
> participate in political activity and speech (political donations) using
> rights of individuals.

The "people" thing is a red herring. "People" shouldn't lose their free speech
rights just because they act in concert through a corporation. That has no
bearing on whether "people" are more appropriately taxed at the corporate
level or the individual one. The latter is a purely utilitarian concern. I
don't think there is anything morally wrong with taxing corporations, I just
think it's not worth the hassle given how easy it is for corporations to move
to low-tax countries.

~~~
tanderson92
Okay, I think I understand your position now and I agree it's self-consistent,
even though I disagree.

Still, good luck to the US remaining a scientific leader with this change.

~~~
tptacek
Is your logic here that major research universities would maintain the same
fee structure and allow less qualified wealthy students to assume the spots
lost by students who can't afford the tax change?

Universities compete for research talent. Won't they simply adjust their fee
and stipend structures to accommodate this change?

~~~
tanderson92
I assume stasis in the rest of the ecosystem, yes. It's hard to predict
exactly what the repercussions would be. Yes, it's unrealistic. What else can
we do? Also, the GOP wouldn't have repealed this exemption in the bill if it
didn't mean increased tax revenue, so the money has to come from somewhere. In
the end it's a reduction in funding for higher education.

Universities compete with each other for research talent, but they also
compete with private industry for graduating BS/BA students. If the amount of
money flowing to higher education in general is reduced, it may be harder for
graduate schools to compete for the best students _against private industry_ ,
even though they continue to compete as best they can with each other.

------
elijahwright
It's probably a bit late to worry about graduate education being destroyed. 30
or 35 years ago might have been more helpful.

------
PatientTrades
Sensationalism at its finest. At some point we have to demand some sort of
integrity from our media. This is getting out of hand. The tax plan will force
schools to alter graduate tuition accounting. But "Destroy" really?

~~~
hcknwscommenter
As a former Ph.D. student and now graduate, I would have to say the title is
is not sensationalist at all. This aspect of the tax plan will raise
additional funds (to at least partially offset the magnitude of the revenue
reductions). Where do you think those funds are going to come from? They come
from the graduate students who will now be taxed on these tuition waiver
amounts.

It is extremely facile to just waive arms and assert that, somehow, the
schools will simply get around the issue by changing their accounting. If that
were the case, why would this even be in the tax bill?

~~~
PatientTrades
> I would have to say the title is not sensationalist at all

It's appalling that you don't find the title extreme. No way will a tax plan
completely destroy higher education as we know it.

> Where do you think those funds are going to come from?

Its simple. The schools are going to start including the cost of taxes when
covering the grad students tuition costs. For example, if tuition is 50k + a
tax of 10k. The schools will cover the 60k for tuition for a full ride. No
school with a conscious is going to slap a grad student with a sizable tax
bill.

~~~
hcknwscommenter
Appalling? Now who is being sensationalist? What you are saying is that the
school is going to bear the cost rather than the student. Probably. But then,
the Ph.D. program just becomes much more expensive for the school to
administer. As such, all but the most well-endowed are going to simply stop
admitting Ph.D. students. Your simplified, and actually unworkable, accounting
trick achieves the same effect of destroying our world-class and unparalleled
STEM graduate system.

