At press time, during the run-up to Election Day, the race for the White House was the focus for most voters. Due to the strong possibility that Democrats could unseat the Republican majority in the Senate, political observers were also watching the Senate races closely. Republicans were defending 24 seats, while Democrats had only 10 seats to protect—representing the most lopsided Senate race distribution in more than 30 years. Political analysts were paying particularly close attention to Senate races in Arizona, Florida, Illinois, Indiana, Nevada, New Hampshire, Ohio, Pennsylvania, and Wisconsin, where it appeared that possible party control of a Senate seat could change hands and sway control of the chamber.
In the House of Represen-tatives, all seats were up for election (most for re-election). But, despite the turmoil within Republican ranks, it appeared highly unlikely that Democrats could win enough seats to overturn the Republican majority in that chamber.
While control of the White House and Congress has significant implications for next year’s agenda in Washington, concerns over the cost of college, student debt burdens, and other college-related issues will continue to garner time and attention on Capitol Hill, regardless of election outcomes.
Higher Education Concerns Remain
Over the past several years, with intense public scrutiny and concerns over college cost, student debt, and other college-related issues, lawmakers have responded by proposing new programs, rules, regulations, and reforms. The stakes are high for higher education institutions as a new president and the incoming Congress could attempt to tackle comprehensive tax reform and reauthorization of the Higher Education Act (HEA).
While Election Day results will shape the negotiations, both tax reform and reauthorization of the HEA are likely to be key issues of concern for the new administration and members of Congress.
Comprehensive Tax Reform
Earlier this year, Speaker Paul Ryan (R–WI) called on his House Republican colleagues to develop a slate of proposals to serve as a framework for legislative action in the near future. Ryan asked House Ways and Means Committee Chairman Kevin Brady (R–TX) to lead the task force charged with developing the tax reform blueprint. In June, that blueprint was released and will serve as the framework for legislation to be developed for action in 2017.
In general, most members of Congress agree that the tax code is enormously complicated and that simplification would benefit both the government and taxpayers. However, there are deep divides on fundamentals, including the role taxes will play in addressing the deficit and economic growth. Many Democrats believe that there isn’t enough common ground between the two parties to enable any type of agreement on a tax reform plan. However, both parties have found some agreement that multinational corporate tax avoidance schemes need to be urgently addressed, and tax reform efforts to disallow multinational companies from holding international profits offshore could be the catalyst for more comprehensive effort to revise the federal tax code.
If Democrats take the Senate majority, Sen. Ron Wyden (D–OR) will return to the chairmanship of the Senate Finance Committee. It is likely that Sen. Chuck Schumer (D–NY) will become Senate Majority Leader, where he will likely exert significant influence on the committee’s tax policy agenda. However, Sen. Orrin Hatch (R–UT) retains the chairmanship, if Republicans maintain their majority in the 115th Congress.
With a change in power unlikely in the House, we do not anticipate any major changes in House Ways and Means Committee leadership. Ryan and Brady will continue to pursue their reform agenda.
The House tax reform task force members call for simplification and consolidation of myriad higher education tax benefits. Their blueprint states: “Under current law, there are over a dozen different overlapping tax benefits relating to education. These tax benefits are so complicated that many taxpayers cannot determine the tax benefits for which they are eligible. In fact, the IRS publication on tax benefits for education is almost 100 pages long.”
While there is little detail, their goal is to streamline current law provisions and “to provide a more effective and efficient package of higher education tax benefits that will cover both college and vocational training programs, including a savings incentive, such as 529 plans, and tax relief targeted at helping low- and middle-income families with the costs of higher education, such as the American Opportunity Tax Credit.”
The blueprint would protect both the charitable and mortgage interest deductions—but eliminate all other deductions. Notably, because of the overarching plan’s proposed increase in the standard deduction, and elimination of other itemized deductions, the number of taxpayers taking the charitable and mortgage interest deductions will likely decrease, as more will likely opt for the larger standard deduction; thus, reducing for many taxpayers the incentive to take the charitable deduction.
Ultimately, no matter how comprehensive tax reform is achieved—if it is achieved at all—a wide-ranging scope of proposed changes to higher education could impact students and their families, the higher education workforce, and the fundamental business operations of colleges and universities. Such changes could arise in the following areas:
- Student and family education tax benefits.
- Employee tax benefits.
- Tax-exempt organizations’ financing, which includes charitable giving, tax-exempt bond financing, UBIT, excise taxes, and penalties.
With the focus on student debt levels and college costs, public attention has also turned to college and university endowments. Congress has directed attention to the role that endowments play in the higher education sector, and how institutions use them in their efforts to specifically address access and affordability.
At a hearing in September titled, “Back to School: Review of Tax-Exempt College and University Endowments,” members of the Oversight Subcommittee of the U.S. House Committee on Ways and Means expressed significant concern with rising college sticker prices and questioned whether schools are doing enough to combat student debt with endowment-funded aid.
The hearing followed a similar one held last October, before the same subcommittee, during which college and university endowments became a prime topic of discussion.
NACUBO expects the public and policymakers to continue raising questions about how institutions are using their endowments to help students and families meet college costs, and this issue could continue to gain traction as Congress explores tax reform.
A comprehensive tax reform proposal in 2014, called for an endowment earnings excise tax, under which certain private colleges and universities would be subject to a 1 percent excise tax on net investment income. It is unclear if this specific proposal will resurface in 2017, but NACUBO expects that lawmakers will continue to explore the drivers behind tuition increases and how endowments are used by institutions to help lower costs.
Higher Education Act
In 2014, the Democrat-led Senate Health, Education, Labor, and Pensions (HELP) Committee unveiled a 785-page discussion draft to reauthorize the Higher Education Act. Republicans also released a white paper outlining their priorities for HEA. While both plans’ goals were to make college more affordable, provide students with better information about college costs and student aid, and increase institutional accountability for student access and success, no major work was undertaken toward reauthorization.
Earlier this year, we saw some speculation about compromises; however, a number of factors limited the ability to reach a bipartisan agreement. Senate Democrats were reluctant to negotiate, since they believe that they may be in the majority next year and do not want to show their hand to Republican leadership. Additionally, compromise is always difficult when there is no new money to spend.
Election Day outcomes, and decisions made by congressional leaders in early 2017, will influence leadership of both chambers’ education committees. If Democrats should lead the Senate, Sen. Patty Murray (D–WA) could possibly take the chairmanship of the Senate Appropriations Committee. And while the chairmanship of the Senate HELP Committee is unclear, Sen. Bernie Sanders (I–VT) has expressed interest. Sen. Lamar Alexander (R–TN) would remain chairman, if Republicans maintain the Senate majority.
In the House, Chairman John Kline (R–MN) is retiring and Rep. Virginia Foxx (R–VA) has declared her interest in chairing the Education and the Workforce Committee. Ranking Democrat, Rep. Bobby Scott (D–VA), could be tapped by Virginia Governor Terry McAuliffe as the interim successor for Sen. Tim Kaine’s seat, should the Clinton-Kaine ticket take the White House. It is unclear who the ranking Democrat would be on the House committee.
Despite the questions about leadership, it is clear that members of Congress and their staff are working behind the scenes to develop their ideas for a possible overhaul. While election year politics stymied any real progress, we do know that lawmakers on both sides of the aisle are keen to develop and improve policies around the following:
- Risk sharing, which would require colleges and universities to assume a liability based on some factor related to former students’ repayment rates, guarantee a percentage of their students’ federal loans, or pay yearly premiums into an insurance fund.
- FASFA simplification.
- Regulatory streamlining.
- Financial responsibility ratios, which determine the methodology for the financial stability of nonprofit institutions participating in the Title IV federal student financial aid program.
- Year-round Pell Grants.
- Campus sexual assault.
With increased public scrutiny and the continued outcry over rising tuitions and student debt, lawmakers are eager to show voters that they are taking action—and as divided as lawmakers are on Capitol Hill, Election Day outcomes could prove to be a voter mandate to lawmakers to find a way to work through the bitter partisanship and find compromise on issues of national importance. Comprehensive tax reform and reauthorization of the Higher Education Act legislation could prove to be those vehicles.