How The US Federal Government Wants to Raise Taxes on Graduate Students

As you might have heard recently, the federal government in the US is getting a tax bill together. It has been difficult for me to figure out exactly what the effect will be and what the odds are of it happening, so today I would like to share what I've learned.

How it works currently

Since starting graduate school I have been making about $25,000 a year. Recently, I found out this is about twice as much as other graduate students at my institution and I'll explain why that is later. From that income I payed about $2,400 in federal taxes and $1,400 in state taxes. This brings my total pay to about $21,200 and my tax rate to about 15%. According to this site my cost of living is $875 per month, adding $500 for rent makes it $1,375 or $16,500 per year. This is consistent with my expenses even though I am a bit cheap and get by at about $1,200 a month. So currently, I am financially secure and don't need to worry.

What about the other graduate students

The other day I found out that not all graduate students enjoy the same salary. In other less profitable departments, students make near $12,000 a year. Even without taxes this is less than the estimated $16,500 cost of living. These students need to take out student loans, get outside funding, or second jobs to make ends meet currently. Even if you are ridiculously frugal like me (I pay $3 a month for my phone bill) this isn't enough to live on.

What is in the tax bill?

The proposed change is to do away with the tax break for tuition waivers. But wait, I didn't mention anything about tuition, why should this affect me? Since graduate students are paid, the tuition is waived by the university. Essentially, the school charges us tuition, and then pays it for us. From my understanding, this allows the university to generate an expense and lets them look like they need more money than they do. Remember, universities take both state money and donations. So inflating their operating expenses could help them raise money. It also helps universities frame graduate students as students instead of employees which is elaborated on excellently here.

How does that impact graduate students like me?

Thought this would adequately represent my wallet after seeing this post by @alexbeyman source

Tuition at our school costs $32,000 a year for out of state students. Every single graduate student in my lab is from out of state. This would likely be the rate for roughly 90% of the graduate students in my program. Essentially, we would start making $57,000 a year, but pay $32,000 in tuition. Only $4,000 of this can be deducted from your taxes. If this is the case, I would pay roughly $7,500 a year in federal taxes and $4,000 a year in state taxes. On $57,000 a year, the tax rate is 20% which sounds totally reasonable, but when you consider that I am actually only making $25,000 and would have to pay $11,500 of it as taxes, it is obvious that this would make my current standard of living impossible. At this rate, I would be making roughly what the less fortunate graduate students currently make, about $13,500 a year.

More importantly, how does that impact the other graduate students?

For those currently making $12,000 a year, applying this tax scheme brings that down to amounts that cannot even be considered a salary. It would make graduate school impossible for them without taking even more debt or bringing in substantial funding from elsewhere. It would wipe out a huge majority of the arts and humanities graduate students. It would make post graduate degrees only affordable to to richest in the country.

What are the odds of this happening?

Ok, here's where the good news starts. Currently, this is only in the congressional version of the tax plan. The senate (the sober second thought of the federal government) does not have this in their tax plan. This means that upon approval of both plans, they will need to merge the two versions and this part could be removed from the final version. This is the best case scenario. We could all go back to doing our research and forget about politics until the midterm elections.

If it does, then what?

Fortunately, I am a part of a pretty strong union. They take a small part of my wages and in exchange get me raises and excellent health insurance (I can't appreciate it because I'm canadian, but I pay only about $500 a year for health insurance). They are already working hard to make sure this won't affect us and I trust them to make sure we come out alive.

The university could erase tuition for graduate students, this would mean nothing at all would change for us, or they could stop charging us for research credits. Research credits essentially are a book keeping tool to make us "full-time students" while we are busting our asses in the lab getting research done. Currently, I take no classes, so not charging for research credits would mean incoming graduate students would have to pay for classes, but once a graduate student stops taking classes they would not have to pay tuition anymore. Makes sense to me. Another alternative would be to charge us $4,000 a year for tuition and let us write it off on our taxes.

Regardless, this tax plan aims to raise taxes on universities and whether this part goes through or not, they will have a much harder time educating their students and paying their employees. So whether they do push this tax burden on to me or not, it's still unfortunate that the current administration feels that universities should bear the cost of giving tax breaks to the rich.

The most frustrating part of it all

Most frustrating is that my lab in particular receives no financial support from the university and, besides start up funds, is entirely funded by outside sources, but I think this will be a topic for a future post.

The Senate passed their bill on Friday, we're still waiting for the congress.