The Tax Cuts and Jobs Act, the largest piece of tax reform legislation in more than 30 years, was passed by Congress on Dec. 19. The act’s sweeping changes to the tax code will likely affect nearly every American household and business. But what will it mean for the College?
One of the bill’s provisions would take away a tax-related incentive for people to donate to Kenyon.
This bill nearly doubles the standard deduction, the amount that every taxpayer can subtract from their taxable income. This change will mean that fewer taxpayers will list all of the deductions on their tax returns and take advantage of each of them. One of the deductions that may not be itemized as much will be the deduction for charitable giving.
Previously, 30 percent of taxpayers itemized their deductions because they added up to more than the standard deduction, which was an average of $12,700. Now, only five to 10 percent of taxpayers are expected to itemize under the new law because the new average standard deduction is $24,000.
This means fewer people might be taking the charitable deduction, a move that means they will have less of a financial incentive to give to institutions of higher education such as Kenyon.
“The whole game with taxes is to try to get deductions as high as possible to reduce [the] taxable amount as low as you can,” Associate Vice President for Planned Giving Kyle Henderson said. “If all of your deductions aren’t as big as the standard deduction, you can just take the standard deduction.”
While Henderson believes there may be some reduction in giving to the College, he said people rarely give charitably solely because of the associated tax breaks.
“I believe that our donors, and most charitable donors, are motivated primarily by their desire to support our mission,” Henderson said. “Tax considerations are much less important, though people do pay attention to them. There is no charitable donation you can make that leaves you better off financially than keeping the money, either before or after the tax bill.”
The Office of Giving noticed a “flurry of giving” at the end of last year after the tax bill passed, Henderson said. He hypothesized this was because the bill was not implemented until 2018, so people were rushing to itemize their charitable donations for 2017. He noted that the number of donations was not very significant.
There were 4,612 donations between July 1 and Dec. 31, 2016 and 4,745 between July 1 and Dec. 31, 2017. In other words, there was not a drastic increase in donations between the fiscal years. It is unclear how this might affect giving in 2018.
Many proponents of higher education feel that the most drastic education reforms proposed in the House and Senate versions of the bill did not make it to the final version. Higher education supporters met the House and Senate versions of the tax bill with outrage and activism. President Sean Decatur was one of these vocal opponents.
“In many ways, the tax bill itself is a retreat from 60 years of investment in higher education and opportunities for students to go onto college by the federal government,” Decatur said in a Dec. 4 interview with the Collegian.
He criticized several proposals in the House version of the bill, including those that would make graduate school more costly and take away tuition waivers for children of College employees.
The final version of the bill could still affect those paying for college, though Director of Financial Aid Craig Slaughter said the College won’t see any impact to financial aid applications until the 2020-2021 award year. In particular, alimony for recipients is no longer taxable, making it easier for custodial parents to qualify for financial aid, according to a Jan. 8 USA Today article.
The ability to deduct interest on home equity loans is also suspended from 2018 to 2025, which could prevent some taxpayers from using home-equity loans to fund college tuition.
The tax bill introduces a new tax on college endowments — but only for the wealthiest institutions of higher education, including Harvard and Stanford University. Institutions with endowments that amount to more than $500,000 per student will now have to pay an excise tax of 1.4 percent on these endowments.
Kenyon will not be affected by this tax.
“We should be so lucky to have that problem,” Henderson said. “Kenyon’s endowment amounts to less than $120,000 per student, so we have a long time to go before we have to pay that tax.”