House and Senate Approve Landmark Tax Bill

In an extraordinarily expedited process, the House and Senate passed H.R.1, the Tax Cuts and Jobs Act of 2017, by nearly party-line votes in each chamber.  In all, private colleges and universities, and the students and families they serve, have survived many of the most harmful original proposals. 

In the final bill, all of the student and family benefits were retained, as were key charitable giving incentives and private activity bonds. However, private colleges and universities will have to accommodate several changes affecting an institution’s financing with the adoption of the new endowment tax and the elimination of bond advance refunding. It remains to be seen what overall effect the bill will have on charitable giving. 

Please see the NAICU checklist for a breakdown of the key higher education provisions in the final agreement.

In addition, there was last minute drama around the endowment provision when the Senate Parliamentarian struck language from the final bill that would have exempted Berea College in Kentucky from the endowment tax.  Senate rules on the tax reconciliation bill prohibit any provisions that benefit only a small number of affected parties.  That ruling, along with two others, sent the entire tax bill back to the House for a second vote of approval.

Berea is a federally recognized work college that is faith-based and does not charge tuition.  To be admitted to Berea, you must be a low-income, Pell-eligible student.  In addition to Berea, any other tuition-free college that meets the formula definition will be subject to a punitive tax on their endowment.

The endowment tax and bond refinancing option are both misdirected efforts by Congress that will absorb charitable gifts to institutions and cost saving refinancing options into the coffers of the federal government.  It will ultimately add costs to colleges and harm the overall ability to serve students and provide the highest quality education. 

Given the sheer amount of changes to the tax code contained in this legislation, there may be the need for technical and/or non-technical corrections or clarification.  If there is additional legislation next year to address this, there may be an opportunity to continue to advocate for the elimination of the endowment tax and the renewal of advanced bond refunding. 

H.R. 1 is on its way to President Trump’s desk where it will be signed into law.