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Carleton not affected by Tax Cuts and Jobs Act

<. 19, the much-debated “Tax Cuts and Jobs Act” passed the U.S. Senate. Following lobbying efforts of Carleton and other colleges, the final act altered earlier proposals to tax endowments for private schools with greater than $250,000 per student, a measure that would have taxed Carleton’s $380,000-per-student endowment.

Several provisions, which were eliminated in the final act, affecting higher education included tax tuition waivers for graduate students, taking away student loan deduction, and taxing credit given to college staff for their children’s education, according to Al Montero, professor of political science. “I’m still kind of in shock,” said Montero. He described this legislation as “a nuclear bomb that did not go off.”

In the final Tax Cuts and Jobs Act, any private college or university with more than $500,000 of endowment funding per student and over 500 students enrolled will now pay a 1.4% tax on endowment investment income. Estimates show this tax alone will yield over a billion dollars in revenue over the next decade, according to Inside Higher Ed.

Carleton, with approximately $380,000 per student, avoided the new tax. The original House bill, which included the provision to tax schools at or above $250,000 per student, caused anxiety among the 60-70 schools qualifying under the House metrics, according to the Washington Post.  Carleton President Steve Poskanzer said that the final version of the bill “is a relief but it is nonetheless noxious and ill-conceived legislation, and it is a thin wedge through the door.”

Poskanzer is still concerned that Congress will lower the minimum endowment size in the future. “But once you set the precedent, it’s a lot easier to come back and say, ‘well, let’s raise the tax and let’s hit more colleges and universities with it’ and so while I am relieved that we did not get hit with a tax right now, I am anything but sanguine that there will not be efforts to try and expand that later on,” said Poskanzer.

While Carleton remains unaffected by the endowment tax for now, several of our peer institutions qualify under the current law, including Swarthmore, Amherst, Pomona, Grinnell, Williams and Bowdoin. Similar to Carleton, other peer schools, such as Vassar and Davidson, qualified under the House version of the bill, but not the final version, according to a recent article from the Chronicle of Higher Education.

Poskanzer, engaging in this topic with other members of the higher education community, said, “I think there is a fair amount of deep concern that at some core level this was a piece of legislation that was aimed as an almost punitive, targeted slap in the face towards selective, private colleges and universities. And that is disquieting and forces all of us to think at the deepest level about why would the American political establishment want to do that? Why is there less trust? Why is there less belief in the importance of our mission? Why is there less confidence and why would people think that this is a good idea?”

This concept of a tax on endowments is relatively new, according to Poskanzer. However, members of Congress have targeted large endowments in the past, including an effort about two years ago to investigate the finances of schools with endowments over a billion dollars.

“The timeframe here was ridiculously short,” and included no consultation of the higher education community, said Montero. In order to show their voters a concrete, new piece of legislation, “Republicans really needed this bill to pass.” Montero explained that within this quick-paced process, lobbying efforts were difficult.

During late November and December, Poskanzer—in an effort to educate the public and politicians alike about the importance of endowments—participated in lobbying efforts. “We wrote, we lobbied every senator, every representative in the state, and national, even folks from outside the state, so there was both formal and informal lobbying efforts. We tried to reach out to anybody that we could on either side of the aisle to try and get a better outcome,” he said.

Poskanzer interviewed with the Star Tribune and MinnPost, two Twin-Cities based news sources. He also wrote an op-ed for the Star Tribune on November 6th, making the case for the removal of the endowment tax from the new bill. He wrote, “The education Carleton delivers — and is expected to deliver from its high-achieving students — shouldn’t be compromised by a shortsighted tax proposal that jeopardizes, and specifically undermines, a private college’s ability to offer more personalized instruction.”

In another interview with the MinnPost, he argued that taxing little, private Carleton College but not the public Texas A & M University, with an endowment more than nine times the size, “is an effort to try to find money where they can.”

Comments on Poskanzer’s op-ed highlight the controversial nature of college finances. One user commented, “I recently looked up tuition at Carleton College.  It is $66000 per year.  There is nothing ‘accessible’ or ‘affordable’ about that number.  Nothing.  No sympathy here…” Another commentator wrote, “Liberal academia complaining about taxes when it affects them. How amusing.”

Poskanzer credited a lack of understanding about endowments with a lot of the debate on the topic, leading to flawed assumptions about Carleton as a rich and gilded institution. When in actuality, “We are trying to hand money over to students for scholarships.”
Vice President Fred Rogers is concerned about another aspect of the new act. The increase in the standard deduction for private citizens could result in decreased itemized tax filings. When taking the standard deduction, there is obviously no deduction for charitable giving, which could result in decreased incentive to give to Carleton. Yet, Rogers is unconvinced that alumni giving is solely for tax deduction purposes.

“If you’re giving us small gifts, like a couple hundred dollars or something, or even a thousand I guess, if your deduction went from $10,000 to $20,000, and for whatever reason your circumstances in life you don’t have $20,000 of itemized deductions, then if you give another gift, you don’t get any benefit out of that,” Rogers said. “But then, are people supporting Carleton only because they get a deduction? I hope not, but maybe some are, a little of both.”

The Tax Cuts and Jobs Act will not affect Carleton’s budget for 2018, which is set for approval in February. Currently, the endowment value is high due to the bullish stock market.

“For us, where it came down is, it’s not going to be a big deal,” said Rogers.

According to Poskanzer, moving forward the College will continue to fight for better legislation and attempt to dispel the misunderstandings about private colleges and universities. “Both for Carleton and the higher education community it is clear that we need to do an even more effective and vocal way for making the case why what we do is important,” he said. “And, this is what the law is right now but that does not mean that it always has to be the law. We need to be ready to fight any expansion of a very flawed concept.”

Montero encouraged Carleton students to pay attention and “be very weary of education policy in this administration and this Congress,” he said. “They decided higher education was not their friend.”

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