It’s Not All L’s With the GOP Tax Reform Bill
This story originally appeared in the February 2018 issue. When the Tax Cuts and Jobs Act became a reality in late December, at the front of everyone’s mind were pressing concerns about how the bill targeted higher education.
For starters, the future of graduate student life was looking bleak. Scholarships awarded to grad students for tuition, research and teaching assistant duties were going to become taxable income.
Next, the GOP was looking to eliminate the possibility for post-grads to request deductions — up to $2,500 — on their student loans. And finally, as the House deliberated over the bill in November, the proposed tax on private colleges’ net investment income caught heat.
However, the tax on private colleges’ net investment income remains. In the past, non-profit higher ed institutions have been able to invest their endowments without fear of taxes. Now, investment income that private colleges typically use for financial aid programs, research and community service faces a 1.4 percent tax.
Early on, Cornell University President Martha Pollack was vocal against the tax.
“(The tax) would likely have the perverse effect of making colleges and universities like Cornell more expensive,” Pollack told Associated Press. “While reducing our ability to provide quality education for economically disadvantaged students, conduct research for the public good and undertake public engagement services that are critical to our mission.”
The tax now affects colleges with endowments worth $500,000 per student. Chuck Marr, director of Federal Tax Policy at the Center on Budget and Policy Priorities, said this dollar amount was key. Any administration whose endowments were “close to the edge” — right around that $500,000 mark — might have to comb out some kinks in how their schools are run.
“It’s not a welcome tax from the university and college perspective,” Marr said. “But I think we’ll have to see.”
People such as Association of American Universities President Mary Sue Coleman have called out the GOP for the damage the tax would inflict on higher education.
“The tax includes no incentives for spending that would in any way make college more affordable,” Coleman wrote in a New York Times Letter to the Editor. “Rather, the tax is a blanket transfer to the federal government of funds that support student aid, research and other programs.”
Even though this rhetoric leaves behind a sour taste for college students, it’s not all doom and gloom.
Shannah Compton Game, a Certified Financial Planner professional and host of Millennial Money Podcast, pointed to three tax reforms that might help young people, not hurt them. One is the standard deduction when you file your taxes.
In 2017, the standard deduction for single filers was $6,350. With the Tax Cuts and Jobs Act, that number has doubled.
“It’s a pretty good chunk of change that has been taken off, right off the bat,” Game said. “That alone could help a lot of people in their 20s feel like they’ve got more cash when they’re filing their tax return.”
“That alone could help a lot of people in their 20s feel like they’ve got more cash when they’re filing their tax return.”
Another reform poised to help young people is the revamped tax brackets. The old breakdown was income taxed by 10, 15, 25, 28, 33, 35 and 39.6 percent. Now, income is taxed by 10, 12, 22, 24, 32, 35 and 37 percent.
Depending on your income, you could find yourself paying less in taxes. For example, someone who was in the 15 percent or 25 percent ranges could find themselves in the 12 percent or 22 percent ones.
“The opportunity for someone in their 20s or 30s to end up better off is pretty good,” Game said. “And I think that there has been so much talk about everything being negative that sometimes it’s hard to see like, ‘Wait a minute! There actually might be a positive.’”
‘Wait a minute! There actually might be a positive.’”
But there are still plenty of perks we’ll have to say goodbye to.
Under the new bill, you can’t claim moving expenses to reduce your taxable income.
You can no longer deduct the cost of having your taxes looked at by a tax professional. The $20 per month you can skim off your taxes for bicycling to work is off the table, too.
And sure, there will no longer be a mandate to have health care. Which is just fine if you don’t want to have health care, but who wants to be in that situation voluntarily?
Game said that the best thing you can do is to stay woke when it comes to your finances.
“I know it’s hard in your 20s, to care about a lot of these things,” Game said. “But you know, the more you can find out, ‘How does this affect you?’ and the more you can be interested about this, I think the better off you’re going to be.”
Look into putting money aside for the future, whether it’s a savings account or something bigger, like a 401(k) and IRA. This can help, especially if you’re going to end up owing money instead of raking it in with this tax reform.
“Because, after all, it is your money at the end of the day. I feel like you owe yourself a responsibility to understand what’s going on."