ip: tax threats to grad students . . .

[David Farber <farber () cis upenn edu>]

I asm amazed at how the congress wants to damage the nations competative
future foe the sake of a few $s. Stupid!!!!  djf






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Colleagues:


Many faculty, staff, and students from around the University have contacted
my office over the last week concerning the budget and tax proposals now
under consideration in Congress.   I am writing to advise you of what I know
about the situation  and to join others who are asking you to contact 
legislators about your concerns.


Most relevant to graduate education here is a proposal that would potentially 
subject the dollar value of the tuition scholarships provided to RFs,
RAs and TAs to federal income tax.  


There is good reason for concern and for action.  While the higher education 
lobbying  community in Washington is optimistic about protecting graduate 
student tuition from taxation, they warn that we must all be making the
case to our legislators for this to happen.  It is VERY IMPORTANT that the 
legislators hear from students, faculty, parents, and not just from 
administrators and lobbyists.


Grass roots efforts of students and faculty can make a difference!  Last
year, the higher education community had virtually written off the Javitts 
Fellowship program which provided graduate fellowships in social 
sciences and in the humanities.  The White House had not included
funding for this program in its  recommendations,  and there were no strong
supporters in Congress.   A campaign by  current and former holders of that
fellowship was critical to saving the program.


Even more is a stake here and a grass roots campaign can make a
difference.


Below, I attach more details on the issues and on what can be done.


Janice Madden
Professor and Vice Provost for Graduate Education
University of Pennsylvania


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DETAILS ON THE PROPOSALS:


Complete proposals are available from the House -- www.house.gop.gov
and the Senate -- www.senate.gov/~finance


Also, the National Association of Graduate and Professional Students
shares their views on the issues: www.nagps.com/NAGPS/


Thomas Linney of the Council of Graduate Schools summarizes the issues
as follows:


"The (U.S. House) Ways and Means proposals are of considerable variance
from previous White House/Treasury proposals with respect to the Hope
Scholarship and Tax Deduction and other education related tax provisions
including proposals to extend Section 127 Employer Provided Educational 
Assistance and Section 117/qualified scholarships and fellowships.  
Under the proposals passed by the Ways and Means committee, Section 127 
would be extended only through December 31, 1997 and the extensions 
would apply only for undergraduate courses.  Section 117 would be 
amended by phasing down Section 117d tuition benefits provided to 
employees of colleges and universities.  This apparently includes 
graduate students performing teaching and research services and treated 
under Section 117 as employees or like employees under Section 117d-5 
of the Internal Revenue Code.


The Ways and Means Committee's intent appears to be create one new set 
of tax benefits related to education.  These will include elements of
the President's proposals and additional new benefits proposed by the Chair
of the Ways and Means Committee, Bill Archer (R-TX).  The committee will
also collapse or cause to expire other educational benefits as a cost 
containment/revenue offset measure.


For graduate students, a set of problems arise, since they are a 
relatively small segment of the populations (visa vis tax policy) and
are subject to wide variety of employment provisions depending on the 
institution and set of individual conditions that prevail at any one 
institution.  With respect to Section 117d-5 as passed into law in 1998
and the draft implementing regulations as published by the IRS and the
statement of managers or Blue Book published by the joint tax committee 
subsequent to the 1986 and 1988 tax acts.  The general consensus of 
opinion has been that compensation for service is taxable (Section 117c);
that providing reasonable compensation is provided for services rendered,
tuition remissions, fee waivers, qualified tuition reductions, tuition
scholarships, fellowships, and other aid forms of the same general type 
are excludable.




The existing House proposals unless changed will modify the relationship
between TAs, RAs, and qualified tuition reductions.  They would 
be phased down between 1998 and 2002, to be replaced by other benefits,
some which would apply to graduate education.  It would make partially
taxable any scholarship and fellowship provided to students related to any
service provided.  It would leave in effect the tax-free status of tuition,
fees, books and equipment with no service requirement for a course of study
and provided via a qualified scholarship or fellowship.  It would also make 
taxable in a five-year phase in at 20% per year all college and university 
tuition benefits furnished to faculty and staff their dependents and 
graduate students via existing tax code provisions.  


The Senate Finance Committee mark up appears to be very different.  In
the Senate bill,  Section 127 is extended for both graduate and undergraduate 
courses on a permanent basis.  Section 117 is not mentioned in the Senate
bill 
as limited or as a revenue raiser.  Additionally, yet another version of the 
Hope Scholarship is crafted with some graduate student eligibility at 50% 
of tuition and book expenses up to a $3000 cap, subject to limits at income 
levels above $50,000 AGI.  An above the line tax deduction for student loan 
interest up to $2,500 is created for the first five years of repayment. 


Additional enhanced provisions for IRA's are created, with tax free 
distributions for graduate and undergraduate expenses.  There are also 
extended provisions for the R & D tax credit and an increase in the tax 
exempt bond cap for colleges and universities."


*******************************************
WHAT YOU CAN DO


Distribute this information to students, faculty, and department and
graduate program  administrators at Penn. 
   
Call (or fax or email) your Senators and Representatives!
It is critical that your voice be heard by your own members
of Congress.  Shear numbers of calls will make an impact.
Make a special effort to swamp the members of the Conference
Committee with calls, as they will make the ultimate
decision in reconciling the proposals.  


The following senators are members of the Conference Committee
which will be reconciling the House and Senate bills.  These are
 critical people to target:


           Roth (R-DE), Lott (R-MS), Moynihan (D-NY),
           Domenici (R-NM), Grassley (R-IA), Nickles (R-OK),
           Lautenberg (D-NJ), Conrad (D-ND)
   
   House Conference Committee members will not be announced until
   July 7th or 8th.


Here are some relevant address and FAX numbers:


 The Honorable William V. Roth, Jr. (R-DE)    
 Chair, Senate Finance Committee         
 United States Senate                    
 104 Hart Senate Office Building         
 Washington, DC 20510               
 (202) 224-2441    (202) 228-0354 (fax)  
 
 The Honorable Daniel Patrick Moynihan (D-NY)
 Ranking Member, Senate Finance Committee
 United States Senate
 464 Russell Senate Office Building
 Washington, DC 20510
 (202) 224-4451       (202) 228-0406 (fax)
 
 The Honorable Bill Archer (R-TX)
 Chair, House Ways and Means Committee
 U.S. House of Representatives           
  1236 Longworth House Office Building
 Washington, DC 20515               
 (202) 225-2571     (202) 225-4381 (fax) 
 
 The Honorable Charles B. Rangel (D-NY)
 Ranking Member, House Ways and Means Committee
 U.S. House of Representatives      
 2354 Rayburn House Office Building
 Washington, DC 20515                    
 (202) 225-4365    (202) 225-0816 (fax)


=================================================================
The Following was Prepared by the Association of American Universities
(June 13, 1997) and may be helpful in composing your letter:


   Impact of Ways and Means Tax and Medicare Bills on Graduate   
   Education


The Ways and Means plan imposes new taxes on college employees and
graduate students (amounting to $433 million over five years and $1.6 
billion over ten years) through the phase out of Section 117 (d) of the 
Internal Revenue Code.  Section 117 (d) currently makes tax free all
tuition waivers made to graduate teaching and research assistants and treats
these waivers like scholarship aid.  Phasing out Section 117 (d) would make 
taxable all tuition waivers that are received by graduate TAs and RAs. 
 Graduate students already live on modest stipends; the loss of Section 
117(d) would significantly increase their tax liability making it
difficult, if not impossible, to make ends meet on their stipends.


The Ways and Means Committee plan also excludes graduate students from 
several of its higher education tax cut provisions, including the
following:


        -The plan's $10,000 tax deduction for amounts distributed from a
          "qualified tuition program" or an "education investment account" 
          specifically excludes expenses for any graduate level course
taken by
          an individual pursuing a program leading to an advanced academic or
          professional degree.


        -The plan's six-month extension of Section 127 employer-provided
          educational assistance covers only undergraduate education. 
          Therefore, graduate students would be required to pay taxes on any 
           employer-provided educational assistance that they  receive.


        -The plan fails to include the much discussed restoration of the
student
          loan interest deduction.  This deduction would be particularly
          beneficial to graduate students, who rely heavily on student loans 
          beyond the debt they have incurred as undergraduates.


This convergence of tax policies which negatively impact graduate education 
would result in a significant disincentive for our nation's most talented 
students to pursue graduate study.  It is in the national interest that the 
federal government develop tax policies that support graduate education 
because:


        -Graduate students are the scientists of tomorrow whose work will 
          increase our national standard of living, improve health care,
sharpen
           the international competitiveness of American businesses, and 
           strengthen our national defense. These students will also teach
           future generations of Americans and help us develop a better
           understanding of our culture and our identity.


        -Graduate students will not only become the scientists and researchers
           of tomorrow, but they are an integral part of current research: 
           they are active research performers, conducting a large portion of
           university research and enriching it with new ideas.


        -The federal role in graduate education is clear:  because the
students 
          who receive graduate degrees are a national resource whose   
          employment prospects are not bounded geographically, states are 
          reluctant to invest substantially in graduate education.
Similarly,  
          industry investment in graduate education is as likely to benefit a 
          given company's competitors as itself.


        -Federal support for graduate education has decreased substantially 
          over the past several years due to tight discretionary spending
caps. 
           For instance, the Department of Education's graduate education    
           programs have been reduced by more than 50 percent within the
            past five years.  Therefore, the use of the tax  code to support 
          graduate education is critical.
******************************************************************


SUGGESTIONS FROM GRADUATE STUDENTS AT HARVARD, STANFORD, MIT
AND JOHNS HOPKINS ABOUT 
 
   What to say in your calls and letters:
   
   Please be polite and courteous, but let them know that you oppose
   the loss of section 117(d), the tuition tax waiver for graduate
   students.  This waiver is retained in the Senate version (S. 949)
   of the Tax Relief Act but eliminated in the House version
   (H.R. 2014).  Be sure to mention that you are concerned that this
   issue be carefully considered at the meeting of the Joint House-
   Senate Conference Committee to reconcile the two versions of the
   Tax Relief Act.  Explain to them your concerns for higher
   education and for research should the tuition tax waiver be lost.
   
   Here are some specific points to mention:
   - how this tax increase will impact your financial status
        (have numbers to illustrate your point)
   - how top students will opt to not pursue graduate degrees,
       threatening America's continued leadership in research
    - how graduate students will leave graduate school
   - how losing qualified students in your field will impact the US
        (e.g., biology:  cancer and HIV/AIDS research
               engineering/physics:  national defense)
   - how this tax will increase costs to universities, leading to
        an increase in undergraduate tuition
   - for more specifics, see NAGPS Talking Points:
     <http://www.nagps.org/Student_Aid/105th/Tax_TalkingPoints.html 
*****************************************************************************



-- 
Janice F. Madden
MADDEN () ssc sas upenn edu
University of Pennsylvania
telephone: (215)898-2061
FAX: (215)573-2442
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