by Jennifer Vannette
Graduate students across the nation are beginning to despair over the proposed GOP House tax bill, and they should. For most students, their education is possible because their funding comes in the form of a tuition waiver which covers their credit hours and a modest stipend for living expenses. In exchange for this, the grad student works as a teaching assistant or research assistant and that labor provides a valuable and affordable service to the university. This opens the door to students of all income levels whereas in the past only students of independent means could afford to pursue a higher education degree.
What does this tax plan actually do? Under the current plan the tuition waiver is not taxable income. This is money that the student never even sees. The university pays itself from one account to another and the student never even plays middleman. The stipend varies from university to university and usually reflects both cost of living for a given region and field of study with STEM fields typically earning higher wages. The stipend is taxable income. Under the proposed GOP bill both the tuition waiver and the stipend would be taxed.
Many publications are sharing what that looks like for Princeton or other universities, but I thought we should look at the numbers for a PhD at CMU. Currently, most students can waive up to 24 credit hours per year, so we will assume our student is taking the full benefit. If we do a bit of rounding, tuition is about $15,000 per year at $627 per credit hour. CMU has a scale for stipends depending on your field of study, but at the low end of the spectrum the stipend is $12,500 per year. Currently we are taxed as if our income is $12,500. Under the GOP plan the student’s taxable “income” would be $27,500. That’s a big jump. So, what does that look like?
Estimate of effect on grad student taxes
Low end of the stipend
Actual pay $12,500
Current tax 210 (1.7%)
24 credits tax 2,220 (17.7%) (10.6 times current tax)
Actual pay $19,575
Current tax 920 (4.7%)
24 credits tax 3,280 (16.7%) (3.6 times current tax)
I think most would agree that $12,500 is already modest income; livable, but necessitating frugality for sure. A $210 tax burden seems reasonable. But $2,220? Now we have to ask if this is even livable... and this is only the federal income tax, we aren’t even complicating it with state, local, and other taxes. In all likelihood graduate students would no longer find their stipends could cover the cost of living.
This is an extremely regressive tax system. The less a student makes, the more tax burden he or she will shoulder. Other factors can raise or lower a grad student's tax burden such as in-state or out-of-state tuition and public or private tuition rates. As both Forbes and the Washington Post highlight, a student at Princeton would see his or her tax rate increase from 8.8% now to 41.9% under the new plan -- a higher percentage than millionaires and billionaires in our country.
Students who still want to pursue higher education but find the U.S. system unaffordable might go elsewhere, effectively draining the the U.S. of intellectuals. As noted in Chronicle “Today, by allowing grads to deduct the value of their tuition benefits, the tax code recognizes the value of their labor... Mr. Wilke, who moved to Texas from Germany to pursue his research, said the bill in the U.S. House of Representatives could push more American students out of the country to seek their advanced degrees. 'The people who are really good will go to Canada or Germany,' he said. 'Does the United States want the best scientists moving away?'
Wired stresses what our country will lose: "...removing the promise of a living wage would dramatically affect people's ability to pursue a graduate degree. 'I think we'd see a shift in who even starts such a program,' says UT Austin computational biologist Claus Wilke, who also blogs on the subject of professional development in academia. A graduate education would quickly become something you pursue only if you can pay for it. That's a bad message to send to anyone driven to learn and innovate. You want talented people to study and contribute to what they're passionate about—not what they can afford."
Perhaps the most forthright, but disturbing assessment comes from Forbes. They write, "If the goal of the new tax plan is to shift the tax burden from wealthy, older Americans onto young, already-indebted students pursuing their higher education dreams, it's poised to be a smashing success. But from the perspective of someone who's been a graduate student, gotten their Ph.D., and then been a professor for many years, it looks like a ploy. The ploy appears to be to destroy higher education, to shift the tax burden onto the most educated rather than the most financially successful, and to disincentivize graduate school as a viable option for the majority of people who'd choose to pursue it otherwise."
It's time to freak out (and call your representatives).