July 14, 1997
Volume 49, No. 35
Summer has really begun to heat up, and not just the temperature outside. As both the House and the Senate worked on their individual budget packages before the July 4th break, several alarming developments emerged that could affect faculty, staff and students at colleges and universities across the country.
Of greatest concern is the House of Representative's current tax bill H.R. 2014. Provisions of the bill include elimination of tax exemption for teaching assistants and research assistants; elimination of tax exemption for courtesy scholarships; and elimination of the tax exempt status for TIAA-CREF.
H.R. 2014 would phase-out of Section 117(d) of the IRS code that has allowed both college employees and graduate teaching and research assistants to use tuition waivers on a tax-free basis. The tax code presently allows universities to waive the tuition of its graduate teaching and research assistants in return for the services provided by the student. The tax code specifically excludes this tuition waiver from income tax.
Graduate students teach up to 40 percent of courses at some universities and conduct a large portion of the nation's technological, defense, medical, engineering, chemical and other research.
Without such tax incentives many of them won't be able to afford to live on the income this work provides. For example, a graduate student receiving a $10,600 living stipend would have to declare the stipend and the $19,000 tuition remission as income, resulting in a tax liability of almost $5,000.
The House version of the bill calls for exclusion of employer-provided educational assistance. Removing the tax exemption from courtesy scholarships available to faculty and staff would effectively eliminate some members of the Emory community who are able to afford an Emory education for their children through this fringe benefit.
H.R. 2014 also threatens to revoke TIAA-CREF's tax exemption. The House Ways and Means Committee projects that tax revenues of $1.2 billion-plus would be generated over the next ten years. This would come directly from earnings that would otherwise be credited as dividends to participants' accumulations. The proposal, aimed solely at TIAA-CREF, seeks to revoke TIAA-CREF's tax exemption. The bill would not affect the tax-deferred status of retirement savings.
Currently, all earnings on TIAA's contingency reserves are untaxed and available to be applied as dividends to both accumulating and pay-out annuity contracts. If earnings on reserves were taxed, there would be a dollar-for-dollar reduction in the amount TIAA could pass along to participants.
Current retirees would receive less income and people still working and making contributions, would feel a cumulative effect that, over time, would be even greater. It would reduce the income of retired educators by as much as 3 to 5 percent annually.
On June 27, the Senate created its version, S. 949, which carries no mention of removal of educational tax incentives.
S. 949 poses no threat to the Section 117(d) provision and provides a tax exemption for student loan interest paid in each of the first five years of loan repayment up to $2,500 annually, as well as a permanent extension of Section 127 of the IRS Code, the tax exemption for the first $5,250 of employer-provided educational assistance.
Steve Moye, associate vice president of Government and Community Affairs, said that the "future of the bill [S 949] is tough to call. It is a historic tax bill for education overall and we're very pleased with most of the provisions. We are addressing the areas of concern to Emory." He suggests that "employees write letters, call or e-mail conference members and express our opinions. Ask them to support the Senate plan."
House and Senate conferees were due to meet to begin resolving differences between the two budget reconciliation bills as Emory Report went to press. The conference on spending (H.R. 2015) began Thursday, July 10, and the one on taxes (H.R. 2014) started Friday, July 11.
Throw into the mix Clinton's proposal for the budget, and Washington may be the hottest place to be this summer. The only thing that is for certain, is that none of this is for certain-yet.
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