Tax Cuts and Jobs Act’s effect on graduate education could cause ‘nationwide brain drain’

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ANN ARBOR, Mich. — If the Tax Cuts and Jobs Act becomes law, many graduate students and families are concerned with large tuition tax hikes that some say would cause a “nationwide brain drain.”

This tax reform, as passed by the U.S. House Thursday, would leave many middle to low-income graduate students unable to finance their higher education. As written, H. R. 1 would repeal the tuition waiver tax exemption for graduate students who are teaching and researching assistants. Overall, it would increase costs for college students by $65 billion over the next decade, according to the American Council on Education.

Thursday FOX 17 spoke with graduate students on the University of Michigan’s Ann Arbor campus, who say this tax bill would make their higher education unaffordable.

“I research epilepsy, and I’m studying largely the role of individual cells during seizure states,” said Ellen Wixted, a University of Michigan PhD neuroscience candidate in her second year.

“My work is in epilepsy as well, but rather in genetic causal mutations that can create epilepsy,” said Alexa Faulkner, Grandville High School graduate and University of Michigan PhD neuroscience candidate who is also in her second year.

To illustrate how the Tax Cuts and Jobs Act would negatively impact Faulkner, her graduate tuition is $41,272, but UM waives her tuition in return for her research and teaching for the university. She also earns a $29,605 stipend for her researching, teaching and living expenses.

Currently, Faulkner is only taxed on her stipend. However, under this pending legislation, her tuition waiver would be considered “income.” Effectively, she would be taxed on $70,877 despite the fact she actually earns $29,605. According to Market Watch, Faulkner would then owe nearly $9,000 in federal income tax, which she tells FOX 17 is unaffordable.

“It’s just not tenable,” said Faulkner. “I don’t think that people who are researching diseases and researching human behavior and history and adding to the whole good of society should be basically penalized for doing as such.”

“I would say a nationwide brain drain is relatively accurate. Certainly those who do not come from wealthy families would be particularly disadvantaged by this,” she said.

And as tuition waiver recipients, Wixted says they are barred from working a second job.

“We’re here for sometimes 60 hours a week because it’s really demanding,” said Wixted. “All of this work to do the research to try to cure disease, become a lawyer, all of that, it takes a lot of time.”

While this is a shocking proposition for students currently enrolled, many are also worried about future generations who may avoid graduate degrees altogether.

“If I were to have my tuition taxed, my earned income every year would go up by 66 percent,” said Zach Kopin, University of Michigan PhD candidate for legal history, and National Chair of Student Advocates for Graduate Education (SAGE).

“That’s not money that ever enters our bank accounts, that’s not money we ever see, so taxes on that would significantly increase our tax burden and reduce the number of people who are likely to come to graduate school.”

As the bill heads to the U.S. Senate, students whose educational careers could end because of it urge taxpayers to oppose this.

“Call your representative,” said Kopin.

“I know phone calls are awkward and weird, but you have to use them, that’s the best way to reach your representatives. And make sure you’re talking to grandparents and parents, anybody else, grad students alone cannot stop this.”

In response to FOX 17, spokesperson Tom Wilbur for U.S. Rep. Fred Upton, R – Kalamazoo, released this statement:

“Fred has heard from universities here in our district and state that are concerned about provisions in the House bill that would impact graduate students who receive free tuition. He understands the importance of this issue and believes it will be closely examined as the House and Senate move forward.”

Spokesperson Brian Patrick also released this statement to FOX 17 on behalf of U.S. Rep. Bill Huizenga, R– Zeeland:

“We understand that grad students are working with tight budgets, just like the majority of families across West Michigan. That is why the Tax Cuts and Jobs Act provides relief for lower- to middle-income earners by doubling the standard deduction and significantly reducing tax rates across the board.”

FOX 17 also reached out to U.S. Rep. Justin Amash, R – Grand Rapids, for comment but as of Thursday evening has not heard back.

Currently, the U.S. Senate’s version of tax reform does not include this tuition waiver taxation provision. Kopin and others are hopeful when Congress reconciles the two bills representatives would leave higher education off the table.

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  • Bob

    Let the schools they are working for pay their taxes. Too many people are getting special tax breaks. The middle income guys get nothing.

    • Tim

      These tuition waivers ONLY help middle and low income students. Even upper middle class families would have a very hard time paying 4 year of undergrad, and then 6+ years of graduate education. You want doctors and research into diseases, right? If so, these waivers make it so new medicines can come out, and you don’t have to wait years for a doctor because there are plenty of people being trained… for now.

  • Michael

    So in the example used the subject makes $70,000 a year but only wants to be taxed on $29,000 of it?

    I don’t care if the extra $40,000 ever hits their bank account or not it’s still earnings that should be taxed. What about wage garnishments? Should people not be taxed on those because the money never hits their bank accounts?

    Compare it to those that take out $40,000 in student loans. When they make the money to pay that back they get taxed on that income.

    • Joe

      I think this is a valid question: why shouldn’t graduate students be taxed on tuition waivers?
      One answer to this question is that (1) tuition waivers incentivize graduate education and (2) that the financial burden caused by taxing tuition waivers will more than cancel out the incentive.

      In response, you might ask, “why should graduate education be incentivized? Why should these people get a free education and then a cushy job?”

      There are actually quite a few reasons to incentivize graduate school. Scientific and medical research quite literally cannot proceed without graduate students. They are responsible for much of the daily labor that goes into conducting research. Even if you think academia is mostly a waste of money, can you deny that the scientific research benefits the US? For example, part of my research focuses on predicting radicalization and political violence. Other people are quite literally trying to cure cancer.

      Waiving tuition makes it possible for people to work toward these goals. Whether or not that money ever hits our bank accounts, being taxed on that money would make graduate school unaffordable for most graduate students.

      That pretty much means that only people born with trust funds (or the equivalent) will be able to pursue secondary degrees. Do we really need to give them that, too?

      Also, I should point out that most graduate students have already taken out $40,000 or more in loans just to get their undergraduate degrees. We pay just as much as everyone else for college, and then we spend five or more years just above the functional poverty line. Most of us do this because we want to be valuable citizens of this country.

      Finally, most of us don’t get cushy jobs after we get our PhDs. The average research scientist makes an annual salary of about $75,000. This is, of course, well above the national median and salaries do vary by field. However, this is nothing compared to the salaries that doctors, lawyers, and MBAs command.

      We do what we do because we want to contribute to society. And, the thing is, we do. The technology you use, the medical treatments your family receives, the weapons the military relies on, are all developed by graduate students or people with graduate training.

      Do you really think it’s a good idea to disincentivize that work? I’m not saying that we shouldn’t be taxed on tuition waivers because “it’s not fair,” or anything like that. I just mean to point out the fact that if we are a lot of us will have to drop out, enrollment rates will plummet, and scientific research in the US will be severely undermined. How does that help anyone?

      • Michael

        i think what the school is doing is a way to skirt the tax code. Instead of paying you an amount that allows you to pay your tuition they are waiving your tuition. I think many tax loopholes like that need to get closed. It’s not that what you are doing isn’t necessary or good, it’s that you should have to pay taxes on money earned. I’m sure everybody taking advantage of tax free income could come up with what they feel is a good reason why it should continue.

        I think that the whole, “Enrollment rates will plummet and scientific research will be severely undermined” is a sky is falling type of over-dramatic response. People would find a way to continue doing what they want to do, what they need to do. Even if they have to take out a few more thousand in student loans a year to continue their education. No trust fund needed.

        • Joe

          Well, I definitely agree that schools are skirting the tax code. I’d argue that the entire higher education system in this country is perversely structured, bloated, and in desperate need of reformation. For example, charging undergraduates $40,000 tuitions knowing that they will be paid up front by Federal loans (that have an increasingly high rate of default) is just clear-cut profiteering. Paying graduate students at rates that often drop below the local minimum wage is also profiteering.

          So, sure, I can even agree that tuition waivers should be taxed. However, as you yourself argue, that’s not because there’s no reason to not push graduate students into even deeper levels of poverty, but rather because graduate students should be paid enough to cover the costs of their tuition. I’d take this a step further and argue that we should also be paid enough to feed our children without having to rely on food stamps, but maybe that’s just me.

          However, the fact is we don’t get paid that much. Not even close. At our current salaries, we cannot afford to pay taxes on our tuition waivers. As you point out, that’s not our fault. We simply do not get paid enough.

          What I don’t understand is how taxing our tuition waivers closes this tax loophole for universities. We’re the ones that would be taxed! If the problem is that universities should pay more taxes, why would the solution be to increase graduate students’ tax burden? I mean, we’re not talking about lawyers trying to find a loophole; this is new legislation drafted by representatives of the Federal government. They literally make laws! If they want to make universities pay by taxing tuition waivers, they should tax the universities. E.g., they could instate some sort of transfer of assets tax for universities who give tuition waivers. There is no plausible reason that this burden *must* be placed on graduate students.

          Also, I think you’ll have a very hard time finding any evidence that enrollment rates won’t plummet and that scientific research won’t be undermined. I do agree that people generally figure out how to do what they want to do and especially what the need to do. However, nobody *needs* to go to graduate school. And, if it’s going to add another $50,000 in debt on top of undergraduate debt (not to mention 5 years of more of not being able to pay against interest), far fewer people are going to *want* to go to graduate school in the US. I certainly never would have and I many of my peers have stated the same.

          Finally, since we seem to agree that the financial structure of higher-education is perverse and that these institutions are raking in tons of money without paying sufficient taxes or wages, do you really believe in a policy that will just lead to more student loans?

          You’re right that people (who haven’t maxed out their loan allocations) could take loans out to pay their taxes. But isn’t this going to just make things worse? Do we really want the Federal government bearing more of the burden of education?

          This amounts to instating a Federal tax that, baring independent wealth, can only be paid by taking out a Federal loan. Are you really comfortable advocating a Federal tax that can only be paid by taking on Federal debt?

          I agree that higher education needs to be held accountable. However, I don’t see how punishing graduate students is a good way to do this. We love what we do, but graduate school is already brutal. We work long, high-stress hours; many of us are uncertain about where our careers will take us; and we get paid very low wages. It is not five years of fun or easy living. Compared to the general population, graduate students of high rates of depression, clinical anxiety disorders, suicidal ideation, and suicide. You can assume that that’s because we’re weak, privileged, soft, liberal, or whatever, but that is irrelevant to the fact that, for many, attending graduate school is already a huge sacrifice.

          I think you are grossly underestimating the proportion of people who are simply going to opt out if tax rates for graduate students are functionally increased by 40 to 500%, which is what this legislation will do.

          I can see why you advocate that institutions of higher education bear a heavier tax burden. But, there are so many ways that this could be accomplished without placing an untenable burden on graduate students.

          Don’t you think our representatives can do better?

    • Tim

      The 40k is a false construct though, the “tuition charged” is NOT for classes like in undergrad for most graduate students, as many people assume. Graduate students had to do undergraduate degrees just like anyone else did undergrad, and most still have tons of students loans.

      They sign up for the work they do as credits: teaching credits, research credits, etc. Directly opposite of how undergrad works. The tax code doesn’t understand this. A graduate student signs up to do a job with credit hours, the undergraduates benefit from the graduate students work when they sign up for those same credits. So it’s not like making 70k and being taxed on 30k, it’s like making 30k and being taxed on 70k because you received 40k worth of “on the job training.” But also, every single job you could work operated this same way, so going elsewhere wouldn’t solve your problem. I’m sure you have received lots of on-the-job training in your life, so if they suddenly decided that the on-the-job training had some arbitrary monetary value that you had to pay because they had graciously “waived it,” your head would be spinning.

  • Commonsense

    Nothing but a group of spoiled entitled crybabies. Expect a free education and not pay taxes on that? You decided to choose a research field, if you think you are better than everyone else, we won’t tax you, but once you graduate, expect to work for five years with no paycheck to pay society back for your research job.

    • Joe

      I can see why you feel this way! There’s no free lunch; someone is always paying for it!

      However, I don’t think your portrayal of graduate students is entirely accurate. I don’t know anyone who “expects a free education.” I live in one of the most expensive cities in the country and I make under $30,000 a year. I also work 40-70 hours a week, between teaching and conducting research. That’s fine, it’s what I signed up for.

      However, the contract I signed also included an (at the time) non-taxable tuition waiver. If that waiver becomes taxable, my income taxes will increase by 500% and my net income will drop from about $27,000 to $17,000. In that case, I will have to drop out.

      Again, fine. I’m willing to work with the “life’s not fair” argument. However, it’s also the case that a lot of other graduate students will have to drop out. And, it’s the case that far fewer people will opt to go to graduate school. This has nothing to do with fairness or expectations, it’s just a fact. And, a consequence of that will be a huge negative impact on scientific and medical research in the US. Just to remind you, science is not *just* for climate change and promoting the liberal agenda. It is also essential, for example, for maintaining a competitive armament, developing new technologies, and curing diseases.

      Given that taxing graduate students on their tuition waivers is not going to have any practical positive effects (we both know that’s not going to do anything to the deficit), what’s the point?

    • Tim

      It’s not actually a free education though. The “tuition” charged are credits that are the actual work of the graduate student. If they paid tuition for their work, it would be no different than if your work expected you to pay them every time you walked in the door. It would be like if your company told you that you were making 70k, but they were going to charge you 40k for on-the-job training before you see your paycheck, and the government wanted to tax the entire thing. Oh, and every job you were qualified for operated like that. You would be fine with that? I don’t see how people just trying to maintain their livable income makes them crybabies.