Impact of Proposed Tax Bill on Smith College and Higher Education

November 8, 2017

Dear students, staff, faculty and alumnae:

I write to alert you to legislation moving quickly in Congress that could have significant implications for Smith College, students and their families—affecting the affordability of and access to higher education nationwide.

The proposed Tax Cuts and Jobs Act (H.R.1) recently introduced in the House of Representatives contains a number of provisions that will adversely affect students and educational institutions, like Smith, whose missions are significantly supported by endowment income and whose students come from families spanning the income spectrum.

Provisions in the bill are estimated to cumulatively increase students’ college costs by more than $65 billion between 2018 and 2027. These measures are strongly opposed by many in the higher education community, including the National Association of Independent Colleges and Universities (NAICU) and the American Council on Education (ACE).

Two elements of the bill are particularly concerning.

First, the bill would tax income on university and college endowment earnings, a mandate that would reduce Smith’s overall funding and limit our ability to allocate funds where they are most needed.

At Smith, income from the endowment generates a critical funding stream—fully one-third of the operating budget— that allows the college to provide financial aid to students with need, shape the composition of the faculty to meet curricular objectives, develop new initiatives, keep pace with technological change and offer programs that benefit society at large. Smith students and their parents, regardless of income or assets, pay less than the true cost of a Smith education because of subsidies from the endowment.

If endowment income is taxed, a Smith education would likely become more expensive, which could make it inaccessible for some, altering the diverse makeup of our student body, and potentially reduce the overall quality of education. Specifically, the proposed 1.4 percent tax on endowment income could represent a $1.2 million negative impact on Smith’s annual operating budget. To put that figure in context, it represents the equivalent of financial aid for 30 students every year, based on Smith’s average institutional aid award of $39,000.

Second, the bill directly targets those with student loans, proposing to repeal the loan interest deduction. Currently, alumnae with a modified adjusted gross income of less than $80,000 ($165,000 if married filing jointly) can deduct as much as $2,500 of student loan interest from their taxes every year. H.R. 1 would remove this deduction, an important support currently used by three in 10 Americans paying off student loans.

The House bill is the first step in a legislative process that is moving very quickly. Similar action is expected soon by the Senate Finance Committee. Given our shared commitment to education access, I hope you will join me in making your concerns known. Resources and background are available on the Smith website.

If enacted, this bill has the potential to undermine college affordability and jeopardize the future of private and public colleges. In turn, this could have a negative impact on employment and the economy. I thank you in advance for raising your voice and fighting to preserve the values of access and excellence on which Smith College was founded.

Sincerely,

Kathleen McCartney
President

Deborah L. Duncan ’77
Chair, Board of Trustees