The Republican tax bill passed in late December, leaving the University and surrounding community with mixed feelings.
The final bill omitted many proposals present in the House Bill that would have harmed students and the University’s endowment. These provisions included stripping the exemption for tuition-waivers that graduate students use for income tax filings, removing the student loan interest deduction, and a broader endowment tax that would have applied to the University.
The bill almost doubles the standard deduction for all individual tax filers to $12,000, temporarily reduces income tax rates, and permanently lowers corporate tax rates.
The new 1.4 percent endowment income tax—initially intended to apply to universities with an endowment valued at over $250,000 per student—saw that threshold double to $500,000 in the final bill.
The University’s endowment, valued at $288,000 per student at of the end of the 2017 fiscal year, was left untouched. However, the tax will still apply to roughly 35 universities across the country, with more to come as endowments grow. According to Vice President for Finance and Administration Nathan Peters, it is unlikely the University would come under jurisdiction of the tax in the near future, as it would require a 70 percent growth in value.
Yet the University remains against the provision.
“We remain firmly opposed to this on principle,” read a campus-wide statement by the administration sent out on Dec. 20. “The endowment tax will turn out to be a tax on financial aid.”
Some believe this change could benefit higher education by incentivizing universities to invest in their educational capacity rather than competing for prestigious endowments.
“The tax at the margin shifts the incentive away from saving and toward spending,” said Professor Thomas Gilbert of the University of Washington.
Ted Mitchell, President of the American Council on Education and the leading lobbying organization for higher education of which the University is a member, said in a statement that the bill would negatively affect Universities. He argued that the doubled standard deduction would reduce incentives for charitable donations to endowments, the state and local tax deduction could hurt state funding coffers, and that the new endowment tax will hamstring student aid programs.
“This tax reform legislation would make higher education more expensive and less accessible,” Mitchell said. “This is a big step in the wrong direction.”
The House version of the bill also proposed removing the employee-dependent tuition benefit, an exemption many employees of colleges use. This exemption was preserved in the final version of the bill.
In 2018, the bottom 80 percent of Americans will receive an average tax cut of $675, according to the Urban Brookings Tax Policy Center. Individuals in the one percent would receive a tax cut of $50,000, the group found.
Outside of education, the bill lowers the corporate rate from 35 percent to 21 percent and provides a 20 percent deduction to some pass-through businesses such as limited liability companies, partnerships, and sole proprietorships.
Despite initial low approval ratings, Republican representatives have expressed confidence in the new plan’s capacity to better the lives of average Americans.
“When people back home and our local businesses see the tax relief, they’re going to know they weren’t told the truth by the opponents of the tax reform,” said Rep. Kevin Brady R-TX.
Attitudes have improved since the initial passing of the code. In the month since the bill passed, the percent of people who expect a tax cut as a result of the bill has increased from 33 percent to 41 percent, according to a joint New York Times-Survey Monkey poll.
In Middletown, business owners harbored a cautious optimism.
“I’m hearing ways it might be beneficial to a small business, especially the way we’re structured because I’m an LLC,” said Sue Bauer, owner of The Cooking Company in Middletown. “But I need to do my tax returns to really see the outcome.”
Others business owners doubted it would help them all.
“I don’t see how it’s going to help small businesses,” said Steve Pikos of Fusion Bakery and Patisserie. “I mean it’s going to hurt people earning $40,000 or $50,000. I would like see lower rates for people earning less than $50,000—like 10 percent.”
Students were similarly skeptical, particularly due to the bill’s being crafted exclusively by Republicans.
“I do not trust the Republican party at all, not one bit,” said Meg Cummings ’20. “It seems it will benefit people in the short-term, but thinking long-term, I don’t think corporations should get tax breaks.”
Many students also expressed concern over repealing the individual mandate.
“If the individual mandate repeal is still in there, then that’s BS,” Cummings said.
Others expressed reservations, and said they’d have to wait until tax day to see the bill’s real impact.
“I guess anytime there’s new tax reform you hope it’s going to help you,” said Alberto Vasquez ’20. “But as of now, I don’t think it will.”
A provision that would have taxed tuition waivers for graduate students in the original version of the House Bill was also cut from the final bill. This followed significant pushback from members on both sides of the aisle as well as student protests.
Additionally, both the property tax deduction and the state and local income tax deduction are now capped at $10,000. According the Internal Revenue Source, the average property tax deduction and average state income tax deduction in Middletown in 2015 were $6,107 and $6,144, respectively.
One provision in the bill repealed the individual mandate, a central component of the Affordable Care Act. About 60,000 people paid the penalty of $685 in 2015 in Connecticut, according to the Connecticut Mirror. Some state officials in Hartford are considering enacting the mandate into state law in a bid to prevent premium rates from increasing.
“To me, this is a very important topic that we will undoubtedly discuss,” Democratic State Rep. Steve Scanlon—who chairs the bipartisan healthcare working group—told the Connecticut Mirror.