Senate Finance Committee Releases its Reconciliation Proposal

The Senate Finance Committee released its version of tax legislation as part of the reconciliation process. The proposal that emerged from the committee offers a mixed bag for private, nonprofit higher education. While much of the bill language is similar to the House-passed tax bill, there were some significant differences. NAICU has created a bill summary and a side-by-side comparison of the House and Senate tax proposals that provide more details.

On the positive side, the Senate bill maintains all the current student and family higher education benefits. Benefits like the American Opportunity Tax Credit, the Lifetime Learning Credit, the Student Loan Interest Deduction, and the non-taxability of student grants and scholarships remain intact in both the House and Senate proposals. Also, the tax-free treatment of certain nonprofit bonds was maintained.

The Senate and House bills both include the same expansion of Sec. 127 employer-provided education assistance, and the loan repayment benefits were made permanent. In addition, the annual $5,250 tax-free benefit amount was finally indexed for inflation after almost 40 years. Further, the Senate bill does not contain House language creating a “parking tax” on nonprofit employers who provide transit benefits to employees.

However, the committee’s proposal would significantly worsen the current endowment tax on affected private, nonprofit institutions. The Senate proposes three tax brackets for institutions paying the tax:

• For institutions with assets per student of $500,000 to $749,999, the excise tax would remain at the current rate of 1.4%;
• For institutions with assets per student of $750,000 to $1,999,999, the excise tax would be 4%; and
• For institutions with assets per student of $2,000,000 or more, the excise tax would be 8%.

The Senate bill - like the House bill - proposes to exempt certain faith-based institutions from paying the endowment tax. Also like the House bill, the Senate bill proposes excluding non-U.S. citizens or non-legal permanent residents from the per-student asset calculation. The Senate proposal also only applies to institutions that participate in the Title IV federal student aid programs.

While the Senate’s endowment tax proposal includes lower proposed taxation rates than the House version, NAICU remains adamantly opposed to the existence of any endowment tax.

The Senate tax bill will be bundled with legislation previously introduced by the Senate Committee on Health, Education, Labor, and Pensions, as well as legislation introduced by the other Senate committees. The budget reconciliation process allows legislation to pass the Senate needing only a majority, not the typical 60-vote threshold needed under regular legislative order.

Once the Senate passes its reconciliation proposal, negotiations to resolve the differences between the House and Senate bills will begin. The Senate remains committed to passing its reconciliation proposal by July 4, with the negotiations completed and a final bill sent to President Trump later this summer.

For more information, please contact:
Karin Johns