The Republican Tax Bill

How to Murder Higher Education

There are times when electoral politics seems like a far-off obscure creature, one that is all talk and unimpactful. Then there are times when national politics has a direct bearing on our lives and capabilities. This is one of those times for higher education in America. The House Tax Bill, which was passed on November 16th, carries provisions that make tuition waivers received by graduate students’ taxable income. The Senate Tax Bill, which passed in the dead of the night on December 2nd, does not contain this provision and therefore the true impact on higher education is yet to be seen. It can be said with some certainty, however, that if the House version prevails, higher education in America is doomed.

Higher education in the US, in general, has a particular structure. Universities have considerable tuition — often higher than $30,000 per annum. Masters students usually receive some measure of a tuition waiver, and PhD and post-doctoral candidates often receive full or significant tuition waivers along with a stipend. These tuition waivers become taxable income under the new House Tax Bill, despite the fact that waived tuition is never “income” that students hold. What this effectively means is this: a PhD student who receives a tuition waiver of, say, $40,000 and an annual stipend of $30,000 presently falls under the 15% tax bracket, paying 15% tax on $30,000, subject to individual filing status and deductions, etc. Under the new proposed tax schema, the PhD student (if filing single) now falls in the 25% tax bracket and pays 25% tax on $70,000. With a standard deduction of $12,000, the PhD student now pays $14,500 in taxes on an income of $30,000, making it an effective tax rate of 48.33%.

In the context of The New School, the impact of this tax plan is even more acute. Consider the case of the New School for Social Research. Being a private, tuition driven institution, The New School does not offer full financial support to all its graduate students. Instead, “85% of NSSR graduate students receive merit scholarships.” The School has various tiers of financial support of which the highest is the Prize Fellowship: full tuition waiver for 3 years and an annual stipend of $20,000. Then comes the Dean’s Fellowship that offers a full tuition waiver and no stipend. After this are various levels of partial tuition waivers. Let us consider each of these cases.

  1. Prize Fellowship: A Prize Fellow currently pays 15% tax on $20,000 given standard deductions. Under the new plan she will pay 25% tax on about $56,000 ($20,000 stipend + $36,000 annual tuition waiver for a full time student). She now pays about $11,000 in taxes, leaving an effective annual income of $9,000. This is an increase of about 511% on the current taxes (approximately $1800).
  2. Dean’s Fellowship: A Dean’s Fellow currently pays taxes based on their particular employment situation. Under the new plan, however, she will pay a 25% tax on the tuition waiver of $36,360 and her income. Thus a Dean’s Fellow, who has no stipend, has to pay $6,090 in taxes on her tuition waiver.
  3. 50% Tuition Waiver: A graduate student who receives a 50% tuition waiver from the New School, with standard deductions, will pay about $750 in taxes without having any income.

There are some obvious implications for the lives of graduate students — students who rely entirely on their stipend will now be left with insufficient financial support and will have to heavily modify their standards of living and take up additional jobs to pay their taxes. Students who only receive tuition waivers will now begin the year in debt and will have to necessarily take up additional employment to pay their taxes. This in an education system that is highly demanding of graduate students implies that graduate students will now be even more overworked and stretched out across various jobs. The ability of graduate students to work and support themselves is further constrained by federal law, which limits student employment at universities to 20 hours per week when school is in session. While domestic students may seek employment outside the university beyond their 20 hour/week limit, international students are usually limited by their visa so that they may only work up to 20 hours/week at the university itself. This effectively puts a cap on the amount of work that students can do — and therefore almost necessarily implies greater economic precariousness. The ensuing need to work more thus has implications for the average time to completion for Masters and PhD programs, as well as dropout rates.

The House Tax Bill has implications for the very nature of higher education itself. Education is recognized as a fundamental human right that “shall be equally accessible to all on the basis of merit” according to Article 26 of the Universal Declaration of Human Rights. An education system that is equally accessible on the basis of merit but not on the basis of affordability or viability would stand in opposition of this Declaration. Higher education in the US is tuition heavy, but this is usually sought to be corrected through the provision of financial support in the form of tuition waivers and stipends. The House Tax Bill reduces the efficacy of tuition waivers by treating them as taxable income, and therefore directly discourages students who are from poor or middle-income families to participate in higher education. This is detrimental to possibilities of socio-economic mobility and will serve to increase disparities between various socio-economic groups. This is aligned with the larger structure of the House and Senate Tax Bills that propose historic cuts in corporate taxes from 35% to 20% while increasing the burden on the working class. The Tax Bills are the archetypical examples of trickle-down economic policy, which is vastly opposed in economics and politics, including research by the International Monetary Fund (IMF) itself.

Finally, it is also to be recognized that graduate students in research programs are essentially workers: they provide research and teaching assistance to universities and through their research they participate in the creation of knowledge, which is a public good. Tuition waivers become important in this regard as they allow graduate students to fully participate in and contribute to the academic community. An attack on financial support to graduate students thus endangers higher education and knowledge creation at large.

Srishti Yadav  is a second year PhD student at the Department of Economics, NSSR.


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Srishti Yadav

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