Thousands of graduate students in Colorado face tax increases and losing key tax deductions under a Republican overhaul plan making its way through Congress. And school teachers and staff could also lose a popular deduction.
The changes are part of legislation being pushed in the name of overall tax cuts and simplifying a complicated tax code. The House version of the bill was approved on Thursday.
Here’s how that could work for someone like University of Colorado doctoral student Jaime Kirtz. She's studying information technology in schools and the home in the College of Media, Communication and Information, and trades her research and teaching efforts for a $20,000-a-year stipend and a waiver of her $34,000 a year tuition bill. Under current tax law, her stipend is taxed. Under the Republican plan, that $34,000 in forgiven tuition would be considered income -- and taxed.
“Instead of just being taxed on the $20,000, I’ll be taxed on the $54,000,” raising her taxes by 300 percent, Kirtz said. “I went through line by line of the proposal as well as the existing tax code,” and it would knock down her take home pay to about $13,000 a year, she added.
“That’s at best $1,000 a month,” she said. And it’s a number set against this limiting factor: Many grad students can’t legally can’t work beyond their 20-hour a week teaching and research positions.
An estimated 700 graduate students with waivers at the Colorado School of Mines would be affected by the proposal. The Colorado State University system has 1,961 graduate assistants, and CU Boulder has approximately 3,000.
The impact on universities would be felt beyond the grad students themselves, to the way campuses manage undergraduates. Kirtz and others we spoke with stress that a large percentage of courses and labs are either taught by or supported by graduate students. Grading is often done by grad students, too.
“If they have trouble in class, we’re the ones for them to contact,” Kirtz says. I can’t count the number of hours I’ve spent one on one with students, going over essays line by line with them, giving them comment, feedback. … We’re that front line for students.”
CU Boulder doctoral candidate Ross Etherton works 20 hours a week as a teaching assistant and has a work study job helping low-income students. It’s barely enough to make ends meet for the scholar of Germanic and Slavic language and literature. His wife and 9-year-old daughter live in student housing, which takes about 60 percent of his monthly income. The family has to rely on food stamps, and Medicaid for Etherton’s wife and daughter. They use a credit card if they have dentist appointments or need glasses.
“The tax refund we get goes to replenishing savings and paying credit card debt and also to help us get through the summer,” he says. Under the GOP proposal, their refund would shrink by $1,600, he says.
Yukai Chen from China is beginning his Ph.D work in race and gender on Chinese television at CU Boulder and says the tax proposal “basically would make it impossible for me to live.”
He says there is a larger, long term effect as well: “It will pretty much eliminate prospective students who are considering coming to the U.S. for graduate studies.”
“It is not sustainable for people who are not from a wealthy family,” he said.
There’s an additional factor in the GOP plan: College students at all levels would lose their deduction for interest paid on student loans.
Stress On Universities
University of Colorado spokesman Ken McConnollogue says the student loan issue is worrisome enough. But a larger worry is that that the graduate student tax hike will discourage people from getting advanced degrees. He says that affects the economy.
“These are the students our knowledge-based economy needs, particularly in STEM fields. So these are the very students we need for a healthy economy,” he warned.
Colorado universities have been lobbying the state’s congressional delegation on other issues in the bill. The House bill decreases the charitable giving tax credit, “so the result of this is a loss of money that typically would go for financial aid for students, that our donors give for endowments or scholarship funds,” McConnollogue added.
The House bill also repeals a tax exemption for a type of bond through which the university has saved $60 million in borrowing, McConnollogue said.
Teachers Will Feel Effects
The Republican tax plan could also pinch the wallets of K-12 teachers, principals and counselors. They would lose the $250 deduction they can take for what they spend on classroom supplies like books, pencils and paper.
“It’s really disappointing that I might not be able to take some deductions or get credit for that,” said Hans Mortimer while unloading his shopping cart full of supplies outside the R.A.F.T. teaching supply warehouse. New to his job teaching 8th grade math at Martin Luther King Early College in Denver, he said he’s been told by departing teachers, “you should decorate your classroom, you need to provide everything for them pencils, pens, filter paper, curriculum…everything!”
He’s already spent more than $200 of his own money.
There are also provisions that scrap the tax breaks employers get for sending their employees back to school. The American Council on Education, using figures from the House Ways and Means Committee, said that over the next decade the bill would increase the cost of attending college by more than $65 billion. At the K-12 level, the House and Senate bills would end the $250 tax deduction teachers take for classroom supplies.
Proponents of school choice however, are happy about a provision that would allow 529 college savings plans to be used for K-12 expenses including private school tuition – up to $10,000 annually. Ross Izard, director of policy for ACE Scholarships, says that expands school choice marginally “so I think it’s a move in the right direction” but he says it will help mainly middle to high income families.
“I have a personal interest in school choice as a way to equalize opportunity for kids who are coming from more disadvantaged backgrounds,” he says.
Changes Needed, Bill Supporters Say
One study shows the classroom-expense deduction cost the federal government $210 million in 2016. But Linda Gorman of the Independence Institute, says using tax systems for “social engineering, a lean or a nudge here or there by exempting this or that income, increases tax system complexity and, often, its unfairness.”
Gorman said that if public schools can’t afford to outfit classrooms adequately, and teachers have to use their own money, that should be addressed in the education budget.
“Doing it as a tax deduction rather than as a direct grant means that higher income teachers get a bigger benefit from spending $250 than lower income teachers. What makes this fair?” she said. “And, in the interests of fairness, why should student loan interest be taxed at a lower rate than interest on a car loan? Cars at least get people to work, which is more than can be said for some college majors.”
Bill supporter Tamra Farah, deputy state director for Americans for Prosperity Colorado, said her organization does not not take a position on specific education deductions. But it is in favor of a "reform framework that is simple, efficient, equitable, predictable and isn’t burdensome on taxpayers,” Farah said.
“Lowering rates, decreasing brackets and eliminating special loopholes, deductions and exemptions will make tax compliance easier and more affordable. This framework is a giant step toward unrigging the economy and letting taxpayers keep more of their hard-earned money."
Speaking on Fox News, House Majority Whip Steve Scalise said eliminating most deductions is long overdue.
“We simplify the tax code so much that over 90 percent of Americans can actually fill out the taxes on a postcard,” he said. “They don’t have to pay somebody to do their taxes. They can do it themselves and then use that money to go on vacation or add on to their house.”
The Senate version of the bill is still to come and it doesn’t have many of the provisions grad students are losing sleep over. And even though the bill passed the House on Friday, its sponsor, Rep. Ken Brady, R-Texas, told colleagues on the House floor Thursday night, “I will work with you toward a positive solution on tuition assistance in conference with the Senate.”
