The House and the Senate both passed their respective tax plans last month. While the bills’ most controversial reforms do not specifically target Kenyon, President Sean Decatur said in an interview with the Collegian that he sees them as “a call for institutions that includes places like Kenyon to better make the case of why we are a place that is important and relevant to broader society.”
The House bill, in its current form, repeals tax deductions for student loans and taxes graduate school tuition waivers as income. It also includes a provision eliminating tax-exempt private activity bonds, which Kenyon has used to help fund projects like Peirce Dining Hall renovations and the construction of the Kenyon Athletic Center. While the Senate bill includes none of these three provisions, it shares the tax bill’s plan to tax endowments, though at a threshold of $500,000 per student rather than $250,000. Both plans double the standard deduction rate, which could lower the financial incentive of charitable giving.
The proposed taxes on graduate school tuition waivers would make graduate school education more expensive for students who receive them. Eighteen percent of Kenyon students go to graduate or professional schools immediately after graduation. Seventy percent of students “further their education” within five years of graduating and over 50 percent of students eventually earn advanced degrees, according to Kenyon’s website. Decatur suggested that for prospective graduate students, the Senate bill in its current form was much more appealing than the House bill.
Now that the Senate bill has passed 51-49, it will have to be reconciled with the House bill, meaning that House members will have a chance to negotiate in conference with the Senate over what aspects of their bill they would like to see reflected in the final legislation.
Once the two chambers have come to an agreement, they will have to pass the same piece of legislation before it can be signed by President Donald Trump. They are facing a time crunch, as the House adjourns for the year on Dec. 14 and the Senate on Dec. 15. If the chambers manage to get the bill to Trump in time and he signs it, it would go into effect on Jan. 1.
Regarding private activity bonds, the College took out bonds for the West Quad project last week, so even if that provision in the House bill makes it into the final legislation, the bonds for this specific construction project would continue to be tax exempt.
The House bill also targets benefits college employee dependents receive, according to the Chronicle for Higher Education. Currently, Kenyon employees’ dependents are eligible for a tuition remission exchange program among schools in the Great Lakes Colleges Association.
The remitted tuition would become taxable income, potentially altering the tax bracket Kenyon employees who use the program fall into and increasing their tax rate by thousands of dollars, according to Vice President of Finance Todd Burson.
Decatur also expressed concerns over the excise tax on endowments, which is a tax that will take 1.4 percent of an endowment’s net investment income if that endowment reaches a threshold of $500,000 per student according to the Senate plan, $250,000 per student in the House plan.
As of June 2017, our endowment sits at $238 million, or approximately $140,000 per student, according to Vice President of Finance Todd Burson.
While Burson remarked that it is good that these higher thresholds will not impact Kenyon, whose peer institutions typically have much larger endowments, it sets a dangerous precedent.
Decatur and Vice President for College Relations Heidi McCrory both expressed concerns about tax reform’s impact on charitable giving. Both the Senate and House plans double the standard tax deduction, the amounts taken off any tax form regardless of charitable giving.
McCrory also worries that increasing the exemption level on estate taxes, a sign that they might be eliminated altogether in the future, might impact bequests, which make up 18 percent to 25 percent of all charitable gifts, including a $12 million donation Kenyon received last year for the purpose of financial aid.
The House and Senate have made the argument that their reforms will boost income and thus boost charitable giving, regardless of the change to the standard deduction. McCrory said she has seen no data to support their assertions.
From Decatur’s point of view, these two proposals represent a retreat from a view the federal government has held since the Truman administration: that higher education is crucial to American society and economic vitality.
“If we want our graduates to go on, and they do go on, to be leaders in their communities, then we need to model that by being a good institutional citizen in the way we connect with folks locally, with folks in the region,” he said. “And then doing our part to address important issues that impact central Ohio.”