Tax Bills Offer
For better or worse, changes to the federal tax code
proposed recently by both houses of Congress and the president
will profoundly affect higher education.
The Gazette asked associate for federal relations Maggie McIntosh to summarize what's being discussed, and how it is likely to affect the university and its faculty, staff and students.
They fall into five broad areas: tax-exempt bonds and charitable giving; tuition forgiveness; loan interest deductions and employer-provided educational assistance; educational savings accounts and pre-paid tuition; and tuition deduction and tax credits. Briefly, these are the central issues:
Tax-exempt Bonds and Charitable Giving
Johns Hopkins University benefits from charitable gifts, which often come in the form of appreciated stock. The tax bills extend the charitable deduction to the full fair market value of these gifts. Johns Hopkins University and Johns Hopkins Medicine will also benefit from proposals within the tax bills that lift or repeal the tax-exempt bond volume cap on 501(c)(3) organizations. These provisions will aid new capital expenditures and should stimulate our capital campaign.
Both House and Senate bills extend certain tax-free treatment to loan amounts forgiven by private institutions. They make student loan obligations forgiven after 25 years tax-free, as well as payments from certain university-based loan forgiveness programs.
Unfortunately, the House bill would phase out the tax-free status of tuition reductions provided to graduate teaching and research assistants. It would also implement the taxation of undergraduate tuition remission benefits for university employees, their spouses and dependents. This section, 117(d), would have a disproportionately negative effect on Johns Hopkins University and undermine graduate education nationally.
Loan Interest Deductions/Employer-Provided Educational Assistance
The Senate bill provides a deduction limited to $2,500 annually for student loan interest for up to 60 months. It also makes permanent Section 127, which makes job-related education assistance provided by employers tax-free for both graduate and undergraduate students.
Educational Savings Accounts/Pre-paid Tuition
The House bill allows for contributions to educational savings accounts for children under 18. Both House and Senate bills create a pre-paid tuition plan and expand existing plans to cover room and board and private pre-paid tuition. Both House and Senate allow penalty-free IRA withdrawals for undergraduate and graduate education.
Tuition Deduction/Tax Credits
Both House and Senate bills include versions of the HOPE scholarship, which is a 50 percent tax credit for out-of-pocket tuition, expenses and books up to $3,000. The House and Senate plans differ, with the Senate plan including additional tax credits for community colleges and technical schools. Both chambers require a "B" average. The House bill provides a $10,000 per year, per student deduction for state pre-paid tuition plans.
What about TIAA-CREF?
The Ways and Means Committee included in the House bill a proposal to repeal the tax-exemption of TIAA-CREF. The plan calls for TIAA-CREF to pay tax only on its profits or income. Although the actual effect on retirees is unclear, TIAA-CREF contends the loss of tax-exemption would reduce the income of retired educators by as much as 3 to 5 percent annually.
Yes. The Senate version is generally accepted by the university community as good for higher education. It does not include a plan to phase out section 117(d), and, therefore, it does not tax the tuition waivers received by research assistants or teaching assistants and tuition remission for college and university employees. The Senate plan does not remove the tax-exemption for TIAA-CREF. Additionally, the Senate plan included five of six key elements that higher education associations worked toward: a HOPE tax credit, savings incentives, a student loan interest deduction, permanent extension of Section 127--employer-provided educational assistance for both graduate and undergraduate education--and removal of the $150 million cap on tax-exempt bonds.
The president's plan is in strong agreement with the Senate Finance Committee's tax bill. It does not include any provisions on Section 117(d) or TIAA-CREF.
The president's compromise plan includes two components deemed critical to Johns Hopkins University and Johns Hopkins Medicine, that is, the removal of the $150 million tax-exempt bond cap and a permanent extension of Section 127 for graduate and undergraduate education.
The president's plan proposes a revised $1,500 HOPE credit for the first two years of college for students who attend at least half time. It offers 100 percent credit for the first $1,000 in tuition and fees and 50 percent for the next $1,000 until the year 2002. After that date, the credit is 100 percent for the first $1,500 in tuition and fees and 50 percent for the next $1,000. The "B" average requirement and other restrictions are dropped.
The plan also offers a 20 percent tuition credit for the years (including graduate study) after HOPE eligibility. The credit is phased in on the first $5,000 in tuition before the year 2000, and up to $10,000 after the year 2000. It includes an income phase-out that ranges from $80,000 to $100,000.
Hopkins belongs to several national associations that are working to secure the passage of the Senate Finance Committee version. University President William R. Brody has written our Maryland delegation voicing support of many of the key provisions meant to ensure increased access to higher education. He has specifically called for the inclusion of a permanent Section 127 for graduate and undergraduate education, and has outlined the devastating effects a phase-out of tax-free treatment for tuition reductions provided to graduate teaching and research assistants will have. He has also stressed the importance of undergraduate tuition remission benefits for college and university employees and the dangers of taxing those benefits.
In addition, the Office of Federal Relations has responded to hundreds of inquiries from congressional offices and university faculty and staff about the impact of these tax provisions on Johns Hopkins University.
Faculty, staff and Johns Hopkins students can make their opinions known by calling or writing their senators and congressmen. If you are a graduate or undergraduate student, it is important to contact both your home state and Maryland representatives. Our congressional offices have always encouraged, and in fact welcome, hearing from our faculty and students.
To find and contact members of the U.S. Senate, you may go to their Web site: http://www.senate.gov/. To locate members of the House of Representatives, you may go to their Web site: http://www.house.gov/. You may also find the addresses and local phone numbers for the Maryland congressional delegation in any Yellow Pages under "Federal Government."
Go back to Previous Page