The day I received my acceptance letter to graduate school at MIT in 2014, my wife and I cried in the hallway of the BYU library. It was a transformative moment in our lives and allowed me to pursue my dream of becoming a Ph.D. economist. I knew that it would be a long, difficult path that would require five to seven years of sacrifice for my small family. Congress is now trying to make that path even harder.
The U.S. House of Representatives recently passed a tax bill that will be devastating to graduate students and will stifle research and development in this country. A provision in the bill designates “tuition waivers” as taxable income. My tuition is $50,000, but like many Ph.D. programs, MIT waives most students’ tuition in exchange for work as research assistants (working in labs, running experiments, writing papers) and teaching assistants (giving lectures, grading papers). I receive a yearly stipend of $30,000 to pay for rent, food, health insurance and other expenses for myself, my wife and our new baby. Ph.D. stipends at other schools and other disciplines are often much smaller.
Under the new bill, we will be responsible for $80,000 of taxable income — $30,000 from the stipend we live on, and $50,000 from the tuition waiver that never enters our bank account. Even after the reform’s lower marginal tax rates and higher standard deduction, my federal tax liability will double or triple overnight, a 100-200 percent increase in our tax burden. My stipend will be completely consumed by taxes and rent, making it impossible to cover basic expenses for my family without substantial debt. Students from low-income families, international students and couples that are pursuing Ph.D.s simultaneously will be hurt even more severely.
A basic principle I learned in my first economics course at BYU is that when the government taxes a good, service or activity, the economy will produce less of it. Taxing cigarettes has been an effective way to reduce smoking. Taxing Ph.D.s will be an effective way to reduce research and development. Many potential Ph.D.s will be unable to afford graduate work without effective living support. Some schools may try to offset the tax with higher stipends, but that will force them to admit fewer Ph.D. applicants. Many Ph.D.s face uncertainty about their future employment and earnings, making student loans an unmanageable risk. For those without substantial family wealth, there may be no option other than to forgo graduate training altogether.
The new tax deeply undermines our nation’s commitment to basic research and technological innovation. The new cancer therapies that will save lives in the coming decades will be discovered by a Ph.D. student who is currently struggling through graduate school. It should be our goal to encourage these educational investments, but the graduate tuition tax does the opposite. In addition to its national implications, this bill will directly harm the citizens of Utah. According to a 2011 report, BYU has the fifth-highest number of alumni pursuing Ph.D.s nationally. The University of Utah and other state institutions educate thousands of graduate students who would be directly harmed by this bill. Moreover, Utah’s dynamic and growing economy benefits from the innovations produced by our country’s Ph.D.s in fields including biotechnology, computer science and chemistry.
Despite Utah’s commitment to higher education, all four House representatives from Utah voted in favor of the House bill. No justification for the graduate tuition tax has been provided by Congress. The most recent version of the Senate tax reform bill does not include the graduate tuition tax. Should the Senate bill pass, the two versions will be finalized through the reconciliation process. The Senate Finance Committee, of which Orrin Hatch is the chairman, plays an integral role in that process. I urge Senator Hatch, and the rest of the Utah delegation, to keep this provision out of the final version. The tax on graduate tuition waivers disproportionately harms financially vulnerable students and will cripple future research, innovation and economic development.