The enactment of tax reform — following a 51-48 vote in the Senate and a 224-201 vote in the House of Representatives — serves as the culmination of months of debate on Capitol Hill and is expected to have considerable economic ramifications. While the legislation most directly affects corporate and individual tax rates, a number of provisions in the law are expected to have an impact on PA education, health care, and higher education. Some of the most important provisions are:
The Affordable Care Act’s Individual Mandate
The final version of the Tax Cuts and Jobs Act includes a provision that effectively eliminates the Affordable Care Act’s requirement that all individuals purchase health coverage if not already otherwise insured by reducing the tax penalty for remaining uninsured to $0. PAEA has issued statements criticizing the proposed elimination of the individual mandate in previous health care reform efforts based on a Congressional Budget Office projection that 13 million fewer individuals will be insured by 2027 as a result, significantly limiting access to care for vulnerable populations.
Student Loan Interest Deduction and Graduate Tuition Waivers
Under the original House bill, the current deduction of up to $2,500 in student loan interest, as well as the tax-exempt status of tuition waivers provided to graduate students, were slated for elimination. The final version of the legislation maintains the student loan interest deduction while also retaining the current status of graduate student tuition waivers. The protection of each of these provisions represents a significant victory for PA graduates.
An Excise Tax on College Endowments
As a means of financing the corporate and individual tax cuts included in the legislation, the original House bill proposed a 1.4 percent excise tax on endowment investment income at private colleges with assets valued at $250,000 per full-time student.
The final tax reform agreement raises the asset value to $500,000 per full-time student at private colleges with at least 500 students while maintaining the 1.4 percent excise tax rate. Based on the estimates provided by lawmakers, this provision is estimated to impact several institutions with accredited PA programs.
Tax Exempt Bonds
And finally, in a victory for institutions of higher education, the Tax Cuts and Jobs Act does not include a previous House proposal to eliminate deductions for interest-free bonds (Private Activity Bonds) frequently used to finance campus construction.
If you have additional questions related to the impact of the Tax Cuts and Jobs Act on PA education, please contact us at advocacy@PAEAonline.org.