Senator Ron Wyden’s (D-OR) memo from House Budget Committee Republicans outlines options that the committee is considering in order to generate revenue.
The changes under consideration could affect higher education institutions, healthcare organizations, individuals, and businesses.
What Is In Senator Wyden’s Memo?
The memo is 50 pages long and includes multiple options for many matters. For example, the State and Local Tax (SALT) deduction cap, which is expiring at the end of 2025 as part of the Tax Cuts and Jobs Act of 2017 (TCJA), has options such as the complete elimination of the deduction for both individuals and businesses, permanent extension of the cap, doubling the amount for married filing jointly returns, increasing the cap, and eliminating the deduction just for businesses. These options vary wildly, and it is not clear which, if any, path will be favored.
How Does This Affect Higher Education?
- The endowment tax of 1.4% included in the TCJA affected institutions enrolling at least 500 students and exceeding $500,000 in endowment assets per student. In 2022, this tax was paid by 58 institutions. The memo proposes increasing the tax to 14%.
- H.R. 8913, Protecting American Students Act, adjusts the criteria for which students are counted when determining whether a private college or university is subject to an excise tax on its net investment income. Foreign students would not be included when determining if an institution meets the endowment threshold for the excise tax. This bill is meant to incentivize universities that receive U.S. federal tax benefits to either enroll more American students or spend more of their endowment funds on those students to avoid additional tax.
- H.R. 8914, University Accountability Act, would enact penalties for colleges and universities that violate students’ rights under Title VI of the Civil Rights Act. The penalties are intended to encourage educational institutions to comply with civil rights laws and create a more equitable environment for all students. There are concerns, according to the memo, that the bill might lead to unintended consequences, such as discouraging institutions from taking proactive measures to address civil rights issues for fear of financial repercussions.
What Else is Included?
The memo also includes a legislative option to eliminate nonprofit status for hospitals. It specifically states that more than half of all income generated by 501(c)(3) organizations is generated by nonprofit hospitals and healthcare firms. This option would tax hospitals as ordinary for-profit businesses. Another proposed change is to eliminate charitable contribution deductions to health organizations specifically.
The memo includes a repeal of tax credits included in the Inflation Reduction Act related to clean vehicles, clean energy, efficient building and home energy, biofuel, and more.
Among some of the other proposed changes, mostly aimed at the removal of various credits, are the elimination of the American Opportunity Credit, Lifetime Learning Credit, and Child and Dependent Care Credit.
However, the memo does not endorse realizing increased revenue by increasing the federal tax on for-profit corporations. There are a couple of options included in the memo addressing the corporate tax rate, which is currently flat at 21%. One option proposes a reduction to 20%, and the other option lists a reduction to 15%.
The future of these proposals remains uncertain, but their implications could be far-reaching and transformative.
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