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AGB Alert: Summer Recess an Opportunity to Engage Congress on Proposed FY2018 Budget and Tax Issues

Jun 28, 2017

Members of Congress will soon be in their state and home districts—first for the Fourth of July recess (July 3-10) and then for the month of August (July 31-Sept. 4). During this time senators and representatives will be particularly focused on issues affecting their constituents. This period also offers college and university board members with the opportunity to share their thoughts with their representatives on two especially salient issues that will go before Congress this fall—federal funding for higher education and tax reform. 

Trustees are in a unique position to engage with members of Congress, advocate on these important issues, and help educate them about the unique role of college and university board members. As business leaders, professionals, community leaders, alumni, and parents, board members often have the advantage of a special relationship with policy leaders.

Federal budget negotiations and discussions on tax reform could have major implications for higher education institutions. In coordination with their institution presidents, board chairs, and government-relations liaisons, board members should seek to engage with their members of Congress during the upcoming recesses to ensure that the concerns of their college or university are considered as these discussions move forward. AGB believes that engaged boards—given their personal networks and community and business leadership roles—are uniquely positioned to impact conversations around tax reform and federal budget negotiations. However, board members should be advocating on points of view that are consistent with their institution’s policy priorities.

Below, you will find brief overviews and additional resources on these two issues, which can inform board member outreach during Congress’ summer recesses.

FY 2018 Budget

Last month, AGB sent an alert to its members regarding the Trump administration's fiscal year (FY) 2018 budget proposal to Congress. The proposal delivers on the president’s campaign promise to increase defense spending by 10 percent ($54 billion)—a proposed increase that would be offset with reductions in discretionary spending. These proposed reductions are slated to affect a multitude of agencies and programs important to higher education, including spending on federal financial-aid programs, student-loan repayment programs, and scientific research.

Key elements of the president’s FY 2018 budget proposal include:

  • Cuts to historic programs for federal financial aid, such as federal work study, as well as eliminating Supplemental Educational Opportunity Grants (SEOG). Despite the recent change to year-round Pell Grants by the Trump administration, the president’s budget would also take money from the current Pell surplus, threatening future grants. All of these programs support low- and middle-income student access to higher education.
  • Elimination of the Public Service Loan Forgiveness program, a program used by thousands to better their communities in jobs such as teachers and first-responders.
  • Reductions in federal research funding, with a $7.7 billion reduction slated for the National Institutes of Health (NIH) that includes restrictive caps on research overhead costs, an 11 percent overall cut to the National Science Foundation (NSF), cuts to the science budgets of other federal agencies such as the Department of Energy, and the elimination of both the National Endowment for the Humanities (NEH) and National Endowment for the Arts (NEA).

Finalizing the federal budget is a responsibility that lies with U.S. Congress, and therefore the administration’s budget is presented as a proposal for the Congress to consider. Historically, Congress has demonstrated bipartisan support for students and families and innovations in health and science, evidenced most recently in the FY 2017 appropriation measures.

Federal funding for higher education is an investment in this country’s future, and proposals to dramatically reduce that support puts that future at risk. Board members and institutional leaders should be fully aware of the FY 2018 proposed budget and its impact on their institutions and their students. Those considerations should help determine whether and how to inform their representatives about the budget’s key proposals.

Tax Reform

The second key issue relates to federal tax reform. President Trump and the GOP leadership in Congress have promised to simplify the tax code while lowering both individual and corporate tax rates. However, several legislative priorities—such as finalizing the FY 2018 budget, addressing healthcare legislation, and raising the federal debt ceiling—will likely delay consideration of a tax bill until next fall. It is important that governing board members be aware of the various options that Congress may pursue in the coming year, and their potential impact on universities, colleges, and institutionally related foundations. 

The U.S. tax code is big, complex, and interconnected. Lowering corporate and individual income tax rates will require new revenues from other areas in the tax code in order for final legislation to be “revenue neutral,” a goal for proponents of any tax bill that does not increase the federal debt. New revenue would have to come from closing several tax loopholes, such as eliminating the deduction for all state and local taxes, or by implementing a new tax, such as the proposed Border Adjustment Tax (which is a tax on imports).

An alternative to a large, complex—and politically difficult—tax reform bill would be a tax-cut proposal aimed at lowering individual and corporate tax rates. Implementing such a bill would avoid the need to find and allocate other tax revenue. However, such legislation could increase the federal deficit. There is also the potential for an overall tax cut bill that would reduce taxes for individuals and corporations, but would also eliminate several favored tax deductions and credits to keep federal deficits from ballooning out of control.

Higher Education Concerns

It is too early to tell which form of a tax bill will emerge. If major reform proves too heavy a lift, the chances for some form of a tax cut bill will increase. Several tax provisions favorable to colleges and universities will potentially be on the table for reduction or elimination, or will be otherwise negatively affected in a tax reform bill and, also, potentially in a tax cut bill:

Charitable giving provisions are a major concern. There has been talk of putting restrictions on the charitable deduction, specifically, proposals that cap deductions at lower tax rates (a ceiling) or that set a minimum level of contributions (a floor) before a deduction could be claimed. With or without a ceiling or floor, charitable deductions are likely to decline if the standard deduction is increased significantly (as proposed both by the House and by the administration). Coupled with lowering of marginal tax rates, a significant adjustment to charitable gift deductions would decrease the tax benefits for taxpayers contemplating charitable gifts.

House Ways and Means Committee members have also considered new restrictions on university endowments. Among ideas in circulation since 2014 are a 1-percent excise tax on investment income for private college and university endowments with assets valued at the close of the preceding tax year of at least $100,000 per student. Public colleges and universities would not be subject to the excise tax. While limited to large endowments, such proposals could be easily broadened to cover smaller endowments if Congress needed to find other ways to pay for lower tax rates.

Higher education strongly supports preserving or enhancing other provisions of the tax code.  Among these are tax-exempt bond financing, and provisions in the current tax code that encourage saving for higher education, help students and families pay for college, and assist borrowers as they repay student loans.

Other Resources

From AGB:

From ACE:

From NACUBO:

From CASE:

We welcome questions, comments, and examples of impact from our members. For additional information, please contact Tim McDonough, AGB vice president for government and public affairs, at 202.296.8400 or messages@agb.org

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