Dear Department Chairs and Institute and Center Directors,

The United States House of Representatives is deliberating tax reform legislation that includes several provisions that, if passed, would have serious detrimental implications for higher education generally, and would affect Brown’s finances and overall capacity to fulfill its mission of research and education in service to society. President Paxson issued a statement on the matter in Today@Brown, which you can read here.

In its current form, H.R. 1, “The Tax Cuts and Jobs Act,” includes proposals that would affect the treatment of graduate student stipends and employer-provided educational assistance; eliminate the student loan interest deduction; impose an excise tax on net investment income derived from private university endowments of a certain size, including Brown’s; and erode incentives to charitable giving. If enacted, these proposed actions would have dire consequences for our budget and fiscal sustainability, undermining our efforts to invest in robust financial support for undergraduate and graduate education and educational and research infrastructure and programming—all of which are central to advancing knowledge, developing solutions to pressing challenges and spurring economic growth.

The proposed schedule for considering this legislation is aggressive, with the House leadership planning to pass a bill before Thanksgiving. The U.S. Senate Finance Committee introduced their tax reform plan last week, which also includes the proposed excise tax on endowment income, with the goal of having a final bill to the President before the end of the year.  

While the situation is very fluid and details are limited, we are tracking the legislation and evaluating the potential implications of the provisions related to higher education. Preliminary estimates are daunting. For example, using FY 2017 returns, the proposed 1.4% excise tax on net investment income from the endowment could cost from $3.3 million to $6.6 million, depending upon program specifics. Our endowment income supports 18% of the overall University budget, including undergraduate and graduate financial aid, educational programming and employee salaries and benefits.

Early estimates also indicate that the proposal to tax tuition in addition to stipends provided to graduate students could cost each student approximately $16,830 in federal and state taxes for FY 2018. If the University were to contemplate covering these costs, it would require a staggering $34 million. Finally, under the House bill, the Tuition Aid Program (TAP), which provides approximately $11,700 per year for up to four academic years to eligible Brown employees, would now be subject to taxation, with an estimated total state and federal tax of $6,600 per employee each year. This proposal would also have an adverse impact on students at Brown who rely upon this benefit.

The University is taking these proposals very seriously. The government relations working group, which I chair, is meeting regularly to evaluate the components of the bill that have implications for the University and for our students, faculty and staff. We are also coordinating with our Congressional delegation, national associations and peer institutions to make clear to Congressional leaders and the Trump administration the consequences these provisions would have on institutions of higher education and the students they serve, as well as to the national interest. We are working to address these provisions as early in the process as possible.

In addition, the University Resources Committee will review the potential impacts of these provisions and develop a range of scenarios should any take effect. I will keep you apprised of the situation as it transpires.

Sincerely,

Rick

Richard M. Locke
Provost