Over the past week I have been working to generate a fully documented, consistent estimate of the impact of pending federal tax reform legislation. This task is now complete.
This final analysis includes effects of federal, state and FICA taxes, and is also consistent with existing tax rules and the proposed House and Senate packages. Many of these details have been left out of other discussions, even though the FICA and State tax implications are of similar impact as the federal income tax changes. In addition, several people have asked for an analysis of in-state tuition, which I have also added to the analysis.
The link below provides covers both in-state, out-of state, as well as public and private institutions, as well as illustrative effects of differential tuition and different stipend rates.
Here are the major findings:
- Under the House bill, total increase in tax burden to the Graduate student ranges from +24% to +183% under various reasonable scenarios.
- Under the Senate bill,total increase in tax burden to the graduate student ranges from -6% to +3%
- Both tax proposals are clearly regressive, with graduate students at the lowest end of the stipend scale receiving the largest percentage tax increases.
Return on Investment (ROI):
- For every $1 collected in federal taxes on tuition waivers, the federal government will directly lose $2-3 in future federal taxes.
- For every $1 collected in federal taxes on tuition waivers, the State of Utah will directly lose up to $0.15-0.35 in state income tax revenue.
- The direct ROI for retaining the tax-free status of graduate tuition waivers is actually the highest for the lowest stipends.
- At higher stipends, the federal tax ROI is smaller, but these STEM PhDs provide economic multipliers that are significantly higher.
- A conservative economic impact multiplier of 2-5 makes the ROI for tax-free tuition waivers comparable to/better than historical ROI of stock market (DJIA, dividends reinvested) over similar time periods.
- If the House version is approved and we are on a fixed budget and wish to retain our current quality of graduate programs, Universities will have to shrink their graduate enrollment by 10-20% (public) and up to 50% (private Universities).
It is quantitatively clear that the tuition wavier tax provision of the House Bill is strongly counterproductive to the main goal of tax reform: balancing the federal budget. The House bill creates a drag, not a boost, to federal tax income. Furthermore, an investment in retaining the tax waivers can provide a federal tax income that is superior to other types of corporate financial investments. These fiscal benefits come in addition to the other benefits we already know about graduate education.
Consequently, a tax reform policy that retains the tax-free status of graduate tuition waivers is also fiscally responsible. Such policies also support our national priorities for economic competitiveness and development of a high-quality workforce to support our local economy. It leads to the discovery of new technologies and efficiencies that will improve our lives and create new industries. It supports our institutional commitment to increase the diversity of our national workforce and provide access to the benefits of graduate education for low-income and first-generation students. Finally, investment in support of graduate education also improves the quality of our undergraduate education, and directly leads to the betterment of our society.
In closing, I ask that you join me as we contact our elected representatives to endorse fiscally sound policies that strongly support graduate education. It is important to reiterate our knowledge that graduate education will always be a critical priority for both Utah and our nation.
If you wish to have a copy of the underlying spreadsheet, please contact me. I am also available to meet and hear your feedback, and relay your feedback to our elected officials. You can contact the Graduate School at firstname.lastname@example.org.
Thank you for your patience and solidarity,
Dean, the Graduate School