As a former Graduate Student: you live very much close to poverty. The University provides a small stipend which covers essential expenses. Basically, you put up with the low wages because you love your research and are basically engaged in research all the time (i.e. you generally do not have a life). This tax hike will likely reduce that stipend and make life even more difficult.
I won't address whether there is a glut of graduate students; that is an interesting and separate issue. But the fact remains that US univ. have done a pretty great job of attracting the smartest people over the world to come here and engage in research.
Universities can easy fix this by just charging the students a tiny tuition fee so that the students new tax burden is minuscule? The money paid to the graduate students could be the same (very little).
So what's the problem? Is it that Universities route money through the graduate student accounts to avoid paying taxes on it and now they are upset that their tax loophole might be closed?