The fiscal cliff was temporarily averted, but it remains uncertain whether student aid and research grants will be cut.
Just moments before the Jan. 1 deadline, Congress passed the American Taxpayer Relief Act—a package of tax increases, tax cuts and a two-month delay of automatic spending cuts. Although increased tax rates may impact some Duke families, the tax legislation will not significantly affect most families or students seeking jobs after graduation, said Connel Fullenkamp, professor of the practice of economics. But the verdict on potential spending cuts—including those to student aid and research grants—will not be determined until March.
“The climate for universities is going to be a tough one to navigate for quite some time, but the first thing to do in these situations is to not panic,” said Jacob Vigdor, professor of public policy and economics.
Changes to tax rates in the new bill will have varying degrees of impact on students depending on their family circumstances, Michael Schoenfeld, vice president for public affairs and government relations, wrote in an email Tuesday. According to the new provisions, individuals with an income exceeding $400,000 or family households with a combined income of more than $450,000 will experience a top tax rate increase from 35 percent to 39.5 percent.
But most Duke families will likely remain unaffected by the tax hikes, Fullenkamp said. In 2006, the average income for white families of Duke students was $229,997, $118,316 for black families, $170,980 for Latino families, $153,401 for Asian families and $177,336 for multiracial families, according to a report conducted and published by the Campus Life and Learning Project.
Students will benefit from the bill’s five-year extension of the American Opportunity Tax Credit—a program that allows approximately nine million families each year to claim a tax credit of up to $2,500 for college expenses. The new bill also makes permanent the Student Loan Interest Deduction and Coverdell Education Savings Accounts, which were previously temporary. Both measures are methods of subsidizing expenses for higher education.
However, students with campus jobs will see tax increases on their paychecks, Fullenkamp said. The new tax legislation increases payroll taxes, which will deduct more from each paycheck.
The bill may also affect Duke’s capital campaign, which hopes to raise $3.25 billion by 2017, Vigdor said. A new limitation to itemized deductions on charitable donations—set at $300,000 for joint filers and $250,000 for single filers—may discourage potential donors from contributing to the campaign.
Although such limitations to tax deductions may influence smaller donors, it is unlikely to affect the overall success of the campaign, Fullenkamp said. He added that large donors base their donations on how their gift will be used and commemorated, and therefore are unlikely to be deterred by the new measures.
Half of the battle was settled in the tax dispute, but Congress may be in for a even more ferocious debate as they attempt to mediate differences over spending cuts in March, Schoenfeld said. Any solution Congress agrees upon may yield significant implications for financial aid, research and health care, he added.
“At this point, trying to predict what Congress and the White House [will decide] will be a frustrating exercise, but we need to be prepared for a number of potential outcomes,” he said.
Although it may be too soon to determine how federal spending will change, academic institutions have a strong argument for averting large-scale cutbacks, Vigdor said.
“What we have on our side is a strong case and reason: investing in our future,” he said.
Furthermore, financial aid, general education and basic research do not comprise a large portion of the congressional budget, Vigdor said, adding that completely cutting spending in the education sector would have little overall effect on the federal budget. Instead, departments such as defense, social security and Medicare will be much more likely to see cuts, as they represent the bulk of government spending. Political pressure from voters who are concerned about student debt may also discourage legislators from instituting significant cuts to student aid, Fullenkamp said.
Relying on legislators to independently fight for maintaining federal funding for education and research, however, would be a mistake, Vigdor warned. Instead, academic institutions and individuals must actively petition for continued government aid.
So far, Duke has participated in coalitions advocating for continued funding for student aid, research and tax policies that benefit students and the institution—areas the University deems its priorities, Chris Simmons, associate vice president for federal relations, wrote in an email Tuesday.
He added that some of the University’s largest concerns include spending cuts to student aid and research such as the National Institutes of Health and the National Science Foundation. The University received the 13th-most federal funding for research in fiscal year 2010.
But Fullenkamp believes funding to such scientific research program grants will remain largely untouched, though federal grants in the arts may be affected.
“I would be very surprised if funding for scientific research grants got cut severely,” Fullenkamp said. “Congress people are very wary of cutting programs that may lead to scientific discoveries that may fuel economic growth.”
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