Update on the Impact of the Tax Cuts and Jobs Act January 2, 2018
To: The W&L Community
From: President Will Dudley
As the new year begins, I want to update the community on the issue that Steve McAllister, vice president for finance and treasurer, wrote to you about in mid-November. You will recall that we were concerned about the potential impact of the pending Tax Cuts and Jobs Act on Washington and Lee.
Now that the final bill has been passed and signed into law, we have a clearer idea of its consequences for the university and our community.
First, the good news is two provisions in the bill passed by the House of Representatives were not included in the law. One of those would have taxed the tuition assistance that employees and their dependents receive through our Educational Grant Program, and the other would have eliminated tax-exempt borrowing for W&L and other 501(c)(3) organizations. We are thankful that both of these items were removed.
Unfortunately, however, the law contains a 1.4 percent excise tax on the endowment earnings of private colleges and universities with endowments worth $500,000 or more per full-time student. Washington and Lee is one of about 30 colleges and universities that are subject to the tax.
Before we can know how much tax Washington and Lee will owe, the IRS has to determine how endowment earnings will be defined for the purposes of the law. But it is clear that the tax will have a cumulative effect over the long-term, gradually reducing the purchasing power of our endowment and diminishing the funds available to support the university and our students.
The law also nearly doubles the standard deduction for individuals and married couples, which means fewer taxpayers will itemize their taxes and be eligible for deductions of charitable gifts. Some expect this to diminish the incentive to participate in philanthropic giving. W&L is blessed with extraordinarily committed and loyal alumni, which gives us reason to hope we will not suffer the reduction in donations that is predicted for many colleges and universities.
During the past two months, representatives of the university, including many members of the Board of Trustees, have been active in communicating our concerns about the negative impact of this tax on Washington and Lee. I spoke personally with Bob Goodlatte, our congressional representative and a W&L law alumnus, to express my belief that this is a counter-productive policy based largely on a misunderstanding of how institutions like W&L use our endowments.
In the weeks ahead, we will continue to make our case on this issue, in coordination with other colleges and universities that are subject to the tax, even as we prepare for its budgetary implications. We will keep the community apprised of developments as we move forward.