Understanding the Political Economy of Academia Through the Tax Bills

Alyssa Battistoni

Paying for corporate tax cuts with revenue raised from grad students and universities sounds like a parody of a Republican tax bill. Unfortunately–like many seeming parodies these days–it was all too real. The tax bill that originally passed the House would have taxed both graduate student tuition waivers and university endowments above a certain level, measured per-student.

free yale pic

The tax on tuition relief wasn’t in the version of the bill that passed the Senate, and has been dropped from the bill entirely in the reconciliation process—thanks largely to grad students and their unions, who led a wave of protests against the provision. The endowment tax, however, remains intact despite the best lobbying efforts of university administrators.

Understanding the various versions of the bill in relation to both grad students and endowments provides a valuable window into the political economy of contemporary academia. In particular, Congressional Republicans have unintentionally revealed the ways in which the labels of “school” and “student” are only partial descriptors of contemporary universities and the people who study at them.

The provision typically referred to as the “grad tax” wasn’t actually grad student-specific: the House bill proposed to repeal subsection 117(d) of the tax code, which allows tax-free “qualified tuition relief” for employees, including tuition breaks granted to the children of university employees. (The bill may have actually intended to take a swipe at the latter—in states like California and Michigan, public universities are the state’s largest employers—with grad students simply ending up as collateral damage.) But the effects would have landed most heavily on the grad students who make a living doing research and teaching work for the university.

Grad students study, but they aren’t only students: as section 117(d) of the tax code suggests, they also work for their universities. Grad students in the U.S. rarely pay full tuition for their years of coursework, if any: most receive stipends and tuition relief in exchange for teaching and research work.

Under the House bill, that tuition relief would have been treated as taxable compensation, meaning that most grad students would’ve seen a massive jump in taxable income without actually seeing any additional money. Students at many private universities would have been taxed as if they earned $70,000 while actually making around $30,000—a potential difference of thousands of dollars. (According to an online tax calculator, grad students at Yale, where I’m enrolled, would pay over $6,000 more in taxes under the bill—more than three times the current rate.)

If there’s one thing people know about grad students, it’s that they’re already broke. According to the president of the Association of Public and Land Grant Universities, 55% of grad students make less than $20,000 per year. Faced with a drastically increased tax bill, many graduate students would have been forced to leave their programs; graduate education, already a financial hardship for many, would be possible only for those with independent means.

It would also be bad news for the universities who rely on them to work in labs, teach classes, and grade papers as cheaply as possible. The ongoing casualization of academic labor means that low-cost, contingent workers like grad students and adjuncts are essential to the functioning of the university.

Though grad students from all fields would have potentially been affected, most of the attention focused on STEM (science, technology, engineering, and math) students. An estimated 60% of tuition waivers classified under 117(d) go to STEM students—but more significantly, they symbolize the place of universities in the “knowledge economy.” Universities have long conducted scientific research, of course, often with public support. But since the Bayh-Dole Act of 1980, which allowed research institutions to patent discoveries made with public funding, they’ve become powerhouses of economically valuable STEM research. In the decades since, researchers on campus have increasingly done the work once carried out by corporate R&D enterprises—but without the corporate tax burden, and with a cheaper labor force made up largely of grad students, many of them from other countries.

The prospect of losing those workers in particular has prompted a flurry of hand-wringing about the effects of the tax bill on America’s “knowledge economy.” David Nirenberg, Executive Vice Provost at the University of Chicago, declared that “graduate students are a foundation of American economic, scientific and cultural strength, and they lie at the center of the nation’s most powerful engine of discovery in all fields.” Yale Corporation board member Douglas Warner similarly boasted that “two-thirds of the scientific articles cited in U.S. patent applications were published by university faculty and their graduate students.”

But when grad students have attempted to assert their own worth through union drives, administrators have sung a different tune. In NLRB hearings on Chicago graduate students’ petition for union elections in May, the very same Nirenberg dismissed grad students as more trouble than they were worth. In response to a union drive at Yale last year, meanwhile, the dean of the graduate school, Lynn Cooley, repeatedly emphasized that “doctoral students at Yale do not pay any tuition”; in fact, she observed, they receive approximately $369,000 worth in benefits over the course of six years—nearly half of which consisted of waived tuition. The fact that grad students wouldn’t see any of it didn’t matter: the point was to remind grad students of how good they already had it. The accounting trick, of course, was the same as the one in the House bill that Cooley has since decried.

Other universities used the tax bill itself as an opportunity to land a blow against unionization efforts. Cornell, for example, informed its grad students that it classifies them as “students, not employees,” meaning that they wouldn’t be affected by a repeal of section 117(d). That classification doesn’t necessarily have any bearing on the ability to unionize, but the message was clear: don’t identify as an employee.

If it had passed, universities themselves would have had a choice to make. Tuition costs at private universities may be an accounting fiction—but one that generates revenue, just not from grad students themselves. Universities can bill external funders like the National Science Foundation and National Institutes of Health for the tuition of graduate students working on grant-funded projects, even if they aren’t actually taking classes at the time. Reducing or eliminating the sticker price of tuition to preserve grad students’ taxable income, then, would have cut off one source of university income—one often siphoned from diminishing public funds even as private endowments rise to record highs.

A proposed tax on large university endowments, meanwhile, has received less attention but appears likely to pass.

Private universities don’t pay tax on their property or assets because their educational mission qualifies them for nonprofit 501c(3) status. But in the past few decades, university endowments have grown so massively as to attract attention. In 1972, the little-known, dully-titled Uniform Management of Institutional Funds Act removed restrictions on institutional risk-taking, prompting universities to form new investment committees–just in time to take advantage of the Reagan-era financial boom. In 1965, Harvard’s endowment passed $1 billion for the first time (about $7.8 billion in contemporary dollars); today, at $37.6 billion, it exceeds the GDP of over half the countries in the world. If grad students occupy a dual status as students and workers, universities occupy a dual status as schools and corporations: as the joke goes, Harvard these days is a hedge fund with a college attached for the tax break.

That tax break might not be so good anymore. The Senate bill would levy a 1.4 percent tax on the endowment income of private universities with endowments totaling more than $500,000 per full-time student, a category comprising about thirty universities; the House bill would tax endowments with more than $250,000 per student, affecting around seventy schools. The bill that Congress will vote on later this week includes the Senate’s version of the endowment tax.

This isn’t the first time struggling legislatures have looked to tax staggering endowments: in 2009, Massachusetts legislators proposed a tax on institutions with endowments over a billion dollars. Residents of Princeton, New Jersey, recently filed a lawsuit against Princeton University for not paying property taxes. Last year, Connecticut legislators proposed an endowment tax that would affect only universities with endowments over $10 billion (i.e., Yale). Universities have fended off each of these challenges, touting their generosity in undergraduate financial aid and research for the public good—as well as more ominously threatening dark effects to local “knowledge economies” should endowments be taxed.

The last argument has become more significant in recent years, as universities increasingly defend their contributions to society in terms of economic growth. Warner, for example, defends “the top-notch university research that creates U.S. jobs,” claiming that the “essential work” of universities like Yale is to “build the human and intellectual capital the country requires to thrive as a global leader.” But the rhetoric of job-creation is the same deployed by the CEO of any for-profit corporation looking for a tax break. It’s also disingenuous: the much-vaunted knowledge economy employs fewer people than the service economy. And while knowledge-economy jobs might require more formal education, they aren’t necessarily well-paid—just ask a grad student.

Income and educational inequality are more correlated than ever, as jobs themselves grow more disparate, and as fewer and fewer people can afford an education in the first place. Today’s college graduates compete for places at universities so they can later compete for a small number of jobs that require a degree: in 2010, nearly 40% of young people studied towards a bachelor’s even though only twenty percent of jobs required one. But even if many jobs don’t require a degree, credential bloat means that more educated workers are more likely to get them anyway. People with a high-school degree are three times as likely to be unemployed as those with college degrees, and three-and-a-half times as likely to be poor.

The current attack on higher education tends to be read as what Ross Douthat describes as a “targeted culture-war jab”—as a backlash against “PC overreach” on college campuses, giving Republicans a chance to bash universities supposedly full of radical professors and undergraduate “snowflakes.” The cultural dimensions of this caricature and the growing distrust of universities among right-wing voters are no doubt part of the reason that academia is being targeted. But the endless free-speech debates are a red herring. It wouldn’t be so easy to criticize higher education as elitist if it weren’t actually so out of reach for most people.

The claims of Ivy League trustees notwithstanding, endowments don’t have much effect on the accessibility of higher education. Perversely, universities that can afford to provide generous financial aid overwhelmingly serve the children of the wealthy: at both Harvard and Yale, more students come from families making more than $500,000 per year than families making less than $40,000. (Wealthy students are also much more likely to go to private secondary schools, which would also be given a boost in the tax bill via a credit for private school tuition; Republicans are also cutting regulations on predatory for-profit colleges that take advantage of students looking to improve their job prospects.) Financial aid at wealthy colleges can be life-changing for the students who receive it, but they make up a tiny fraction of college students. The Ivy League educates less than 1% of college students. Only 4% of students attend “selective” schools that accept less than 25% of applicants; in fact, all private universities combined educate only 16% of college students. So when Yale expands the number of students it accepts, as it did this year, it’s not increasing access to higher education—it’s simply increasing its market share.

The way to actually make higher education accessible is to fund public universities generously. That isn’t on the table here, of course. The GOP tax on private university endowments won’t redistribute resources to public universities; it’ll pay for plummeting corporate tax rates. Universities, meanwhile, will likely respond to any endowment tax that’s passed, no matter how small, to plead poverty and implement austerity measures, as they did after the 2008 financial crisis.

Grad students have managed to save themselves from the chopping block this time. But the tax bill will only accelerate a vicious cycle wherein higher education is more and more impossible to afford and increasingly becomes a luxury good for the wealthy rather than a public good to which everyone is entitled. Universities—public as well as private—will become easier to stigmatize, easier to criticize, and easier to defund. That, of course, is the point.

Alyssa Battistoni is a graduate student in political science at Yale University and an organizer for Local 33, Yale’s graduate student union.