Tax Reform Process Begins in U.S. House

Last week Chairman Kevin Brady (R-TX) of the U.S. House of Representatives Committee on Ways and Means introduced a tax reform bill, H.R. 1, The Tax Cuts and Jobs Act, and scheduled the markup to start November 6 and continue until the work is completed. This process was initiated via reconciliation through the Fiscal Year 2018 budget resolution.

Prior to the markup beginning, Brady offered a manager’s amendment making changes to the original bill, and the markup (watch it live and view additional resources here) allows committee members to offer amendments.

The U.S. Senate Committee on Finance is expected to release its tax reform bill this week, and next week we expect to see the House bill move to the floor for full consideration.

AACTE has signed on to two letters regarding tax reform. The first letter, led by the American Council on Education (ACE), was delivered to the House prior to the start of the markup November 6. The second letter, being led by the American Federation of Teachers and the AASA, will be delivered to the House and Senate next week and is currently still collecting organizational signatures.

ACE has also created an excellent website of resources to share the impact of the proposed bills on higher education, students, and families, and to give you opportunities to advocate on this issue.

Although the bill is changing as it moves through markup and will change as it is considered on the floor, here is what the original House bill contains that impacts higher education, including your students (courtesy of this summary document from ACE):

  • Impact on Charitable Giving: Doubles the standard deduction for individuals and couples, which will reduce the number of taxpayers who itemize, significantly reducing the value of the charitable deduction, and lead to a drop in donations to colleges and universities.
  • Deduction of College-Age Dependents: Under current law, taxpayers may claim a deduction ($4,050 in 2017) from income for each dependent. Dependents are typically the taxpayer’s children who are 18 years old or younger. A taxpayer’s dependent children age 19 to 23 who are full-time college students also qualify for this deduction. The House bill eliminates all personal exemptions (in favor of higher standard deductions).
  • New Version of the American Opportunity Tax Credit (AOTC), with positives and negatives: (Raises $17.3 billion over 10 years)
  • Positives: Maintains AOTC eligible expenses and refundability, maintains current income thresholds (individual: $80,000-90,000/joint: $160,000- 180,000), and expands credits to a fifth year but at a reduced amount of $1,250 with $500 refundability.
  • Negatives: Completely eliminates tax benefit for non-traditional students taking longer than five years to complete their degrees, part-time students, graduate students and lifetime learners.
  • Repealed (Repealed provisions raise $47.5 billion over 10 years):
    • The Hope Scholarship Credit; the Lifetime Learning Credit and tuition deduction (no separate score)
    • The Student Loan Interest Deduction
    • The Section 117(d) tuition reduction assistance
    • Section 127 employer-provided educational assistance
  • Discharge of Certain Student Loan Indebtedness:
    • Discharge of student loan debt on account of death or total disability would not be taxable. (Costs $100 million over 10 years)
  • 1.4 Percent Excise Tax on Certain Private College/University Endowments: A 1.4 percent excise tax on investment income for private college 2 and university endowments with a value of at least $100,000 per each student and at least 500 full and part-time students. (Raises $3 billion over 10 years)
  • Repeal of Private Activity Bonds: Elimination of the tax exemption for interest on new private activity bonds, which would essentially prevent private institutions from using tax-exempt bond financing. (Raises $38.9 billion over 10 years)
  • Executive Compensation: For tax-exempt organizations (including colleges and universities), a 20 percent excise tax on compensation above $1 million paid to any of its five highest paid employees; would also apply to excess parachute payments paid to such individuals. (Raises $3.6 billion over 10 years)
  • Unrelated Business Income Tax (UBIT): Income derived from research not made “publicly available” would be treated as unrelated trade or business income and subject to the UBIT rules. (Raises $700 million over 10 years)

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    Deborah Koolbeck

    Senior Director of Government Relations, AACTE