Both versions of the Republican-led Congress' tax overhaul levy a new tax on the endowments of major private health-research institutions, and critics say it could have a lasting impact on these facilities and the broader U.S. health research landscape.
Republicans have proposed a 1.4% "excise" tax on the net investment income from large endowments of private institutions. Endowments at public universities—including any privately funded endowments for certain research centers at those public universities—will not be affected by the bill.
But the future landscape of private medical institutions will look different if the Senate's or House's tax bill passes, according to Matthew Shick, director of government relations for the Association of American Medical Colleges.
"The market is a little tricky to predict," Shick said. "I'm not sure how institutions or graduate students would respond, but the model would certainly change."
For example, the Johns Hopkins University endowment would lose an average of $2.1 million a year from the $150 million in net investment income its nearly $3.4 billion endowment typically generates. This income goes, according to the university, to "teaching, research, patient care and service mission."
"Endowments are mission-critical for nonprofit charitable institutions like Johns Hopkins," said Dennis O'Shea, spokesperson for the Johns Hopkins University. "The proposed new tax could threaten future funding for everything from need-based student aid to groundbreaking research and lifesaving patient care, as well as the jobs and economic activity that nonprofit universities generate at a local and national level."
The U.S. is lagging behind other developed countries in medical research, according to an analysis in JAMA. Study co-author Hamilton Moses said universities rely "substantially" on their endowment income to fund scientific and biomedical research, and it's not realistic for private foundations and other sources to replenish the money in endowments that will be lost to the new tax.
The excise tax is a major negative issue in the tax package, according to Moses, because it targets assets and "creates disincentives" for spending university endowments wisely.
"Even the taxonomy is offensive: 'excise tax' implies a punitive measure for irresponsible hoarding of assets," Moses said. "Can this really be said of medical and scientific research?"
The tax has been introduced in the wake of the Trump administration's proposal to cut the National Institute of Health's medical research funding by 22%. The GOP-led Congress pushed back hard on the proposal, and both chambers have approved increases to the funding instead.
The House and Senate bills both contain other provisions that could further affect medical research and graduate students.
The House bill would eliminate the tax waiver for graduate school tuition reductions and the student loan interest deduction. The latter would cost graduate students roughly $13 billion over the next 10 years, according to the American Council on Education.
More than half of graduate study tuition reductions go to students in science, technology, engineering and math, according to the U.S. Education Department. Universities would have to shoulder the costs their students can't afford, Shick said. This would drastically cut back on their enrollment in these programs.
"We have heard from some institutions that they would have to pay students more to cover taxes and tuition, so the budget for institutions wouldn't expand," Shick says. "They would have to reduce the number of graduate students by as many as half."
The Senate bill would repeal advance refunding bonds, which the AAMC calls an "important source of financing for our member institutions. The repeal could boost their loan costs.
If the Senate GOP passes its tax bill, some House provisions might yet make it in as House and Senate Republicans will go to conference on the bill before sending it to the president's desk. But it's unclear what those will be, and senior GOP aides say the upper chamber is focused on getting the bill passed before working out policy details for the House-Senate conference.
