Why Not Attack Tax Reform?

As both houses of Congress charge forward with wide-ranging tax overhaul plans, higher education leaders have chosen to attack specific provisions they feel would hurt colleges and students instead of mounting a more ambitious assault against Republicans’ broader goals.

The strategy is in some ways ironic. Leaders who often talk about the complexity of the postsecondary education system and its pivotal role in fostering economic growth have chosen to focus on their narrow corner of the tax code instead of taking a more holistic view of the currently tangled web of federal rates, incentives and carve outs.

In other words, many in higher ed aren’t saying the current set of tax bills is bad because it seeks to pay for lower corporate tax rates by closing loopholes. They’re saying the current set of bills contains provisions that would be very bad -- for us.

It is a strategy packed with trade-offs. On one hand, it has sparked public discussion about several specific policy proposals that might otherwise have gone overlooked: the House plans to eliminate the student loan interest deduction and to tax graduate student tuition waivers as income, and the Senate measure to subject college logo licensing to the unrelated business income tax. On the other hand, the strategy has enabled some ideas to dominate the early debate that may not have endeared higher ed to the general public, such as when some college presidents lashed out at the idea of taxing wealthy universities' endowments. It could also allow lawmakers to say they were unable to help colleges with their specific concerns and had no choice but to approve the overall tax bill since everyone, including college leaders, indicated it was needed.

College presidents and their lobbyists are navigating a narrow path as they seek to beat back potentially punitive measures in a Republican-controlled Washington. They’re doing so at a time when many conservatives take a dim view of the state of higher education.

But they’re following a playbook that has worked for interest groups in the past. It also gives them the chance to influence any legislation that eventually does pass -- and it could play a part in derailing the current set of proposals entirely.

Higher ed’s strategy is best on display in recent statements by prominent associations. When American Council on Education President Ted Mitchell put out a statement on the House’s tax reform proposal, it argued the plan would discourage students from enrolling, make college more expensive and hurt institutions’ financial stability. But it also signaled willingness to work toward tax reform.

“We believe it is possible to offer tax relief to hardworking middle-class and lower-income Americans in a way that does not increase college costs and make a quality higher education less accessible,” Mitchell’s statement said. “We are eager to work with Congress to enact such legislation.”

A letter sent to members of the Senate Finance Committee by Peter McPherson, president of the Association of Public and Land-grant Universities, listed in detail concerns about both the House and Senate bills. First, though, it acknowledged a need for tax changes.

“Reforming our nation’s tax code is long overdue and we recognize that policy makers have many priorities they must balance and difficult choices they must make throughout the legislative process,” the letter said. Many presidents of APLU universities, in Washington for the association's annual meeting this week, seemed to echo that statement. They prefaced their concerns about the tax bill by saying they support tax reform.

The APLU has for several years supported the idea of tax reform to stoke economic growth and national prosperity, McPherson said during a telephone interview Wednesday. Tax reform is a messy process, he added. The association’s job is to explain nuanced issues like those affecting graduate students, student debt, tax-free bonding and other educational benefits.

Others can pick up the wider debate about tax reform’s goals.

“Given all the forces that are involved in tax reform, with the whole society and virtually every sector engaged, of course there are people who are making these broader comments,” McPherson said. “Our role is to be able to explain the very specific sections that would be impacted.”

Filling that role has drawbacks. It has largely prevented higher ed’s supporters from coalescing around a single issue, which can bring intensity to the political process.

“From an advocacy point of view, it really is difficult when you’ve got so many things you care about,” said David Baime, senior vice president of government relations and policy analysis at the American Association of Community Colleges.

Plus, some of the fault lines running between different types of institutions have been revealed.

Plans to levy excise taxes on the earnings of some large endowments received some of the earliest and loudest pushback, as wealthy universities quickly argued their ability to fund student aid, research and other priorities would be hurt. Presidents of universities with smaller endowments -- many of whom are making fund-raising a priority of their own -- haven’t been supportive of the excise tax, even though many privately grumble about what they see as bad behavior by rich private colleges that could be doing more to enroll low-income students.

As a result, headlines blare about universities fighting to protect their multibillion-dollar endowments even as student debt and tuition rise.

The Boston Globe quoted Republican Representative Darrell Issa saying that some institutions “simply want to have a tax-free investment.”

“We can all talk about the poor kid who gets a scholarship, but sometimes this is about the professors and the people running the endowment and their salaries,” Issa said.

This isn’t to say higher ed hasn’t stitched together its individual objections to form some larger arguments. A Tuesday op-ed in the Hartford Courant by Sacred Heart University President John Petillo and Connecticut State Colleges and Universities System President Mark Ojakian argued the proposed endowment tax would impair institutions’ efforts to educate students regardless of their family income. But it also went on to say that the House bill singles out a small number of colleges and universities, taking the first step toward eroding other benefits for tax-exempt organizations like colleges and charities.

“Although we recognize Congress’s desire to reduce the tax burden on the citizens and businesses in this country to promote economic development, what good will that do if the training they need to succeed is less affordable and accessible?” Petillo and Ojakian asked.

There are reasons to think a more comprehensive attack on the bills could play to public sympathies. A recent survey shows the Republican tax plan is widely unpopular.

Just 25 percent of voters approve of the tax plan, while 52 percent disapprove, according to a new poll out Wednesday from Quinnipiac University. A significant majority of voters, 59 percent, said the Republican tax plan favors the rich at the expense of the middle class. Only 33 percent disagreed with that statement.

Sharp partisan divides lie underneath that polling, however. Republicans were much more supportive of the tax plan than Democrats or independents. Republicans were also much more likely to believe the plan will increase jobs and economic growth.

Higher ed leaders may need to be especially careful in this particular political moment. Republicans’ positive views of higher education have drastically eroded in the last two years, according to polling by the Pew Research Center. Colleges and universities are often the subject of negative coverage in conservative media alleging a liberal bias.

Many say higher education can avoid appearing partisan by sticking to its knitting.

“I would describe our activities as primarily reactive and sort of analytical,” said Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities. “I think what higher ed has collectively done is go chapter and verse and explained the likely impact of these provisions in very nonalarmist ways.”

No matter what the polling says, the higher ed lobby wouldn’t change its strategy, said Steven Bloom, director of government relations for ACE. Associations must approach the issue by being nonpartisan and asking what is best for students and families, he said.

“It is a very toxic political environment, and we have to talk to members on both sides of the aisle,” he said. “And our schools are located in places that are both blue and red states.”

Attacking the concept of the tax reform bills would hurt efforts to be heard by members of Congress, Bloom added.

Given the current makeup of the Senate, where Republicans cling to a narrow two-seat margin, a strategy that would cause any politician to tune out could be a fatal mistake. Some may not consider the full ramifications of a proposal like taxing graduate student tuition waivers until interest groups raise the issue, said Kim Rueben, a senior fellow in the Urban-Brookings Tax Policy Center at the Urban Institute.

“You just need a couple of people to hold the line and say they’re not going to vote for it unless you change this,” she said.

Public university presidents at an APLU roundtable echoed that sentiment Monday.

“I think it’s important for us to make sure all of these unintended consequences be made known,” said Robert Caret, chancellor of the University of Maryland system. “They need to know exactly what’s going to be happening here if it makes it through.”

By coming to the table, colleges and universities can still hope to have some influence on provisions in any bill that does proceed.

“Is there a massaging of this that gives us an ‘and’ that can work a little bit better for everybody?” said Lou Anna Simon, president of Michigan State University.

Colleges and universities are far from alone in that approach. Many industries and interest groups, from Realtors to renewable energy producers, have been mobilizing to protect provisions of the tax code that they like. They’ve been doing it for years, which is a major reason the tax code hasn’t been overhauled since the 1980s.

So higher ed can have it both ways. It can accept the premise that the web of special interests written into the tax code should be unwound. But it still plays a part in defending that web, even if unwittingly, simply by protecting its own corner.