Grad students can’t be tax exempt
I wish to provide a counterpoint to Ryan Brown’s front-page article on taxing graduate assistant tuition waivers.
The article lists a litany of alleged negative consequences. Let’s evaluate the size and fairness of the tax as well as who bears the cost of it.
First, compensation is what one receives for work. Most compensation is cash. However, an employer may provide a non-cash benefit to an employee as well. This allows the employee enjoy the benefit without the cash outlay that would otherwise be necessary.
Not paying tuition represents non-cash compensation to the graduate assistant. Fairness requires that income tax is due on all compensation — cash or “in kind.”
The graduate assistant quoted in the article noted that her income would increase from $32,000 to around $60,000 if tuition would be taxable. By my rough calculation, her income tax liability would increase about $6,000.
So she receives a $28,000 benefit and it only costs her $6,000. That sounds like a really good deal to me.
When graduate students pay no income tax on their tuition waivers, who makes up for the lost revenue? Well, you and I, and lots of other people who don’t have much of anything to do with the graduate assistant.
This list of groups could include: all working college graduates without graduate degrees, all workers with high school degrees only, and all retirees — just to identify a few.
It just doesn’t seem fair to tax all of these people so a graduate assistant can avoid paying their fair share of income taxes.
This point exemplifies the concept of The Forgotten Man, which was a lecture given by William Graham Sumner of Yale around 1888 and published some years later.
He posits A and B get together and decide X (graduate assistant) is worthy of assistance. Instead of writing their own checks, they have an income tax benefit bestowed on X, but paid for by all who pay income taxes whether or not they agree or even know of the loophole.
Sumner quote: “I call him the Forgotten Man…He works, he votes, he generally prays…but he always pays.”
The Coalition of Graduate Employees is nothing more than a special interest group seeking favor through the income tax code.
There are thousands of special interest groups like it getting into the taxpayer’s pocket. It is prima facie evidence of why the code is so complex and needs simplification.
And don’t worry about the “poor starving graduate assistants.” Competition for talent will force universities to make up the difference.
Christopher Gable is an occasional contributor to the Mirror’s Opinion page.