MIT Sloan Fellows Professor of Management Michael Whinston
From Boston Review
Much has been written about who the likely “winners” and “losers” are if the Republican-controlled Congress is able to pass a version of its tax bill. The middle class: losers; the wealthy, who own nearly all of the stock in U.S. corporations that isn’t owned by foreigners: winners. Those whose income comes from wage earnings: losers; those whose income comes from “passive” ownership of businesses: winners.
It has even been suggested that several geographic distinctions in the legislation may be “payback” for how California, New York, and other coastal blue states voted in the 2016 election. Taxpayers in high local and property tax states such as California and New York, for example, are losers in the GOP plans while Texans and others in low-tax “Red” states are winners.
If that seems like an overly sensitive reading, consider this: under the GOP plans, the ability to deduct personal casualty losses from wildfires and earthquakes would be phased out. The deduction for damage from hurricanes and floods, however, would be kept. As California State Senator Mike McGuire, a Democrat whose district includes areas ravaged by wildfires, told the New York Times, “. . .it’s hard not to think that Congress has their sights set on the Golden State.”
But the aims of this legislation are more politically ambitious than mere retribution, and nowhere is this more evident than in the House bill’s assault on higher education. If enacted, three provisions promise to have a devastating effect on college students, graduate students, and higher-education institutions. First, the House bill eliminates the deductibility of interest payments on student loans—a deduction that more than 12 million people used in 2015, according to the New York Times. Next, it taxes the tuition grants given to graduate students, grants that enable them to forego entering the workforce and instead pursue a Masters degree or PhD. As a result, a typical graduate student on a $20,000 stipend and a tuition waiver could end up owing nearly $10,000 in additional tax. And finally, it taxes the endowment investment income of roughly seventy universities and liberal arts colleges, reducing the funds available for undergraduate and graduate scholarships.
While these changes will help offset the massive tax reductions for the rich, they are a pretty small drop in the bucket towards that goal. And it is strange that pro-growth and pro-investment Republicans would sign off on something that so harms those who want to invest in human capital. So why then did the House pass this bill? The answer can be found by looking at the 2016 election results. Read More