Dear Congressman Frelinghuysen,
I wish to bring to your attention two related issues. The
first is the imposition of imputed income on Graduate students in the US. The
second is Government funding of foreign students by various Government
agencies. Both issues present clear and present dangers to the security of the
United States. I base these conclusions on personal knowledge at academic
institutions as well as my extensive international business experience in over
twenty countries.
Permit me to lay out the details related thereto:
1 My background is a combination of academic and business actions. I hold a PhD from MIT in Electrical Engineering. I have been on the faculties of almost a half a dozen institutions including MIT, Columbia, GWU, and the Beijing University of Economics and Finance. I have personally started and operated companies in over twenty countries with offices in Moscow, Prague, Warsaw, and Athens. Most recently I returned to MIT from 2005 through 2012 to assist a half dozen Doctoral students. I also work with colleagues at Columbia Cancer Center in New York.
I have had extensive experience in major universities and
also as an entrepreneur having started and/or financed some thirty-five
companies. As such I have a somewhat unique set of experiences and expertise
regarding the issue which I put before you in this correspondence. I also have
been a resident of your District for nearly forty years.
2 The New House Tax Code materially changes the ability of Graduate students to finance their education
The new Tax proposal by the House makes some major
material changes to various elements of the tax code. This correspondence
refers mainly to that regarding the imposition of an imputed income on Graduate
students resulting from being a teaching or research assistant. My argument
herein demonstrates that this change can and in my opinion will cause
irreparable harm to the United States. Simply it will drive the remaining US
citizen grad students out of Grad school, except for that small amount from
families independently wealthy and capable of sending a student to such
institution. However my experience is that most if not almost all students in
Grad school for science and technology come from families of lesser means. In
my own case I worked my way through MIT as an Instructor, and could not have
done so under the proposed tax laws. In fact not being able to have done so
would have resulted in thousands of lost jobs in our economy from the many
companies I was able to start and/or finance.
3 Currently almost 80% of Graduate students in Science and Engineering are foreign.
The NY Times has a piece on the increasing percent of
engineering graduate students who are foreign. They state:
At the
undergraduate level, 80 percent are United States residents. At the graduate
level, the number is reversed: About 80 percent hail from India, China, Korea,
Turkey and other foreign countries.
This is a startling figure but one should ask; who is
paying? Having spent an almost sixty years career in and out of Academia, I can
make the following observations related thereto.
1. In the late 1950s the US Government made a major push
to create more engineers and scientists. There were scholarships and
institutions were incentivized to follow through. There were many scholarships
and fellowships specifically for these types of degrees. Furthermore tuition
was low, due mainly to the fact that overhead at Universities was minimal.
Graduate fellowships were numerous, and were all performance related. If one
did well in the right undergraduate curriculum then Grad school was effectively
free. These graduates then went to the work force and created the technologies
that underpin our national defense and competitive technologies. This is no
longer the case.
2. Most of the grad students were first generation,
coming from families that in many cases did not even graduate from a college. Frequently
engineering and science was an entry point for the lower economic classes.
Families with money often sent their children to exclusive schools and then in
to banking or law.
3. Upon graduation jobs were available, especially for
Graduate students with good degrees. Engineers and scientists entered areas
such as solid state design, RF engineering, and the like. People during this
period built things as compared to today's social media types who
"code" screens which engage the users but one can argue has little
value.
4. At that time places like Silicon Valley were
inexpensive, allowing for a diverse group of workers. Housing was plentiful; and
at reasonable prices. Startups made "real stuff", not just software
enhancements.
In contrast, in today's world:
1. Almost all high tech grad students are funded by the U.S.
Government. Yet 80% are foreign students who are also funded by the taxpayers.
Those Chinese, Iranian, Syrian, grad students are funded by US tax dollars.
They finish on our tax dollars and return home. In the case of the Chinese
students they often bring this expertise back to Chinese companies and then these
companies directly compete with the US. That is true in both for commercial and
military entities.
2. US undergrads are often financially burdened when they
finish their undergrad and thus are pressured to work and pay back the loans as
well as taxes. As a side note the new Trump Tax Plan makes the student loan no
longer deductible, another burden. The taxes taken from American students, and
others, will then go to support the 80% of the grad students who are foreign.
3. What can be done? I believe it is simple; look back to
the 1950s. Eisenhower may very well turn out to be our greatest President. His
Administration saw the threat and at the same time the opportunity. The found
ways to fund high performing undergrad tech students. Then make it a level
playing field for US citizen students, especially if the taxpayer is footing
the bill, the taxpayer should have preference. One should put a finger on the
scale for US students.
4 Many, a great majority of truth be told, of the foreign Graduate students have their education funded by the US Government via Research Grants to Faculty members.
In my experience at MIT and other institutions, to this
current day, Grad students are funded by research grants almost exclusively
from US Government entities. Of the six doctoral students I assisted from 2005
through 2012 not one was an American citizen. Only one remained in the US after
marrying an American citizen. All others returned to their country of origin.
They took with them expertise vital to the success of the US. In addition
without exception they were funded by DoD or DoD related research!
5 Moreover many of the foreign Graduate students in high tech such as Electrical Engineering and Computer Science are funded by DoD or similar national security sources.
The problem is not just that the foreign students are here
and funded by US entities but that many of these in critical areas are funded
by US DoD or related entities.
6 Graduating Foreign Students all too frequently return to their homes unable to remain productive in the U.S.
I had tried on multiple and repeated times to try and
keep the students here. They wanted to stay. Yet Immigration Laws prevent this
from happening. This results in the loss of intellectual capital paid for by
the taxpayer and the transfer of this capital to risky if not outright hostile
countries.
7 Many of the high tech foreign Graduate students returning to their countries after having been financed by DoD or related Government sources find their way into the home military or intelligence agencies. As a result many foreign Graduate students are being educated by US Taxpayers via DoD or related Government sources and return to pose potential long term threats to the security of the United States.
I have seen many of these students returning to their
home countries and finding positions in the defense or related industries. They
have no choice since the U.S. will not accept them as potential citizens. This
means that we really must re-examine our immigration laws regarding high tech
and bio related graduate students. We must try to retain them, give then
flexibility, no tie them to some work visa structure which benefits an employer
but not eh U.S. If we are to invest them we then want the ability to gain the
return on that investment.
8 The current Tax Code as noted below allows for US students to NOT include imputed tuition costs if they are Teaching or Research Assistants (TA or RA).
Namely Section
117 (c) allows for the exclusion of imputed tuition costs. That is highly
acceptable. See Appendix A.
9 The new House proposal eliminates the student’s ability NOT to include the imputed costs. In fact it makes the student include them which often dramatically increases the burden on US students making it impossible to attend Graduate School
Now
quoting from the House Bill, on p 96 we have
SEC.
1204. REPEAL OF OTHER PROVISIONS RELATING TO EDUCATION. (a) IN GENERAL.—Subchapter B of chapter 1 is amended—
(1) in part VII by striking sections 221
and tons in the table of sections for such part), (2) in part VII by striking
sections 135 and 127 (and by striking the items relating to such sections in
the table of sections for such part), and (3) by striking subsection (d) of section 117.
And on p
98 of the House Bill we see:
(e) CONFORMING AMENDMENTS RELATING TO SEC11 TION
117(d).— (1) Section 117(c) (1) is
amended— (A) by striking ‘‘subsections (a) and (d)’’ and inserting ‘‘subsection
(a)’’, and (B) by striking ‘‘or qualified tuition reduction’’.
Namely
the law is changed to allow for a imputed income resulting from an
assistantship.
10 The combined results of funding foreign students and now taxing US students for unearned imputed income creates a clear strategic threat to the United States. In fact this is a clear and present danger. It strengthens our adversaries while debilitating the U.S to combat these adversaries.
The
proposed taxing of Grad School tuition for Research Students would drive the
20% of American Grad students to 0% it is the "Make America Last"
Act. We would be left with 100% Chinese, Iranian, Indian, Vietnamese etc
students who will get all of our ideas paid by Government dollars and take it
home to demolish our economy. Frankly this is one of the dumbest ideas I have
ever seen. I managed to succeed due to Eisenhower and his innovations. Remember
Admiral Yamamoto went to Harvard, he then bombed Pearl Harbor. We do not want
to repeat that! The proposed new Tax Plan as many destructive elements. It
helps the rich but destroys our future. For example, the journal Nature states:
Graduate students, who receive
the lion’s share of tuition waivers, would be most affected. And 60% of the
145,000 students who get tuition reductions each year are working in science,
engineering, technology and mathematics fields, the US Department of Education
estimates. The amount of money that the government would reap from these taxes
would be minuscule, given the $20.5-trillion national debt. But it could weigh
heavily on young scientists. Take a hypothetical PhD student at the
Massachusetts Institute of Technology (MIT) in Cambridge, in receipt of a $23,844
NIH stipend. Under the current system, she would pay very little in taxes. The
new law would add her $49,000 MIT tuition bill to her taxable income as though
she were paid a $73,000 salary — an amount she never actually sees. This would
add thousands of dollars to her tax burden.
Thus, a
student would get about $24,000 plus an imputed say $50,000. Under the old plan
they paid tax on $24,000. On the new plan it tax on $74,000. Namely with a
$12,000 deduction it would be 15% of $62,000 or $9300. That is a 39% tax rate!
Plus 3.5% for FICA plus 3% for Medicare plus in Massachusetts an added 8%. This
is a 53.5% Tax Rate!
Now we
already have 80% of the Grad students funded by their Governments, China and
Iran. The remaining 20% are US and are paying the burden. So what will happen?
Drug development, high tech development etc will all migrate to these
countries. Not to mention weapons development. Eisenhower saw the need for a
strong technology core. In contrast, Team Trump wants to destroy whatever
future we may have had.
11 Some argue that the new House Bill has no true effect. They are grossly in error.
The
recent House Tax Bill eliminates the ability of Grad students to not pay tax on
a Teaching or Research Assistant-ship. Namely it means that they must pay tax
on $50,000 or more of money never received. Well they will destroy America as
we know it. Perhaps that was the intent of the Republicans, I leave that to
them. But Forbes has a writer who declares:
On the chopping block in House
Republicans’ bill is section 117(d) of the Internal Revenue Code, which exempts
qualified tuition waivers from taxation. Many graduate students work as
teaching or research assistance while completing their studies; universities
often waive their tuition and provide a small living stipend as compensation.
The House plan would treat these tuition waivers as taxable income, which
graduate students fear could lead to annual tax hikes of several thousand
dollars. Anxiety among graduate students and those considering graduate education
is understandable. But what the narrative around this provision has missed is
that the House bill does not touch another provision of the tax code: section
117(a). This section provides that scholarships used to pay tuition and fees
are not considered taxable income. The catch is that universities which provide
these scholarships cannot stipulate that students work as teaching or research
assistants as a condition of receiving them. This is the main difference
between scholarships and qualified tuition waivers: universities can require
students to work as a condition of receiving the latter, but not the former.
Under current law, both scholarships and tuition waivers are not taxable. But
the House bill draws a distinction between the two. Under the proposal,
universities can still reduce their students’ tuition bills without incurring
tax consequences. However, if graduate students work as teaching or research
assistants as a condition of getting that tuition help, then the amount of
tuition reduction would be considered taxable income. Universities that wish to
avoid saddling their graduate students with large tax bills therefore have an
easy way out. They can reclassify their qualified tuition waivers as
scholarships...
This is
grossly false. The RA cost is charged to the research grant, usually a
Government contract, and thus is netted to zero for the University. As a
Scholarship it is not netted against the grant and thus comes out of the
endowments or other similar funds. Perhaps for a TA this would work but there
are fewer TAs and more RAs.
The
main question is; who put this element in the Tax Bill and why? Now in my
experience, Congress never really writes anything, Lobbyists do. So follow the
money. Who did this?
12 To remedy this the US should promptly take the actions of: (i) removing the tax burden of section 117 as proposed by the House, and (ii) prohibiting the funding of students from hostile or potentially hostile countries by US agencies which research could be considered a threat to the US security or economy. Overall, Government should be looking out for the best interests of Americans. That means we need an understanding of the Eisenhower days, just after Sputnik. We managed to support the research areas and education of those most critical to our economy and security. The payoff lasted for decades. Now however is waning and just the opposite is occurring. Namely we are driving US students out with maniacal tax stipulations while funding the education and strategic capabilities of our adversaries, military and industrial.
I
strongly recommend that the above recommendations be considered. I greatly
appreciate your opposition to the Bill but after consideration this section can
and I assure you shall cause irreparable harm to the United States! Its
inclusion reflects a gross ignorance of what has allowed the US to be
successful after WW II. This must be corrected promptly.
Very
truly yours,
Appendix
A
26 U.S. Code § 117 - Qualified scholarships
Qualified scholarships
Gross income does not include any amount
received as a qualified scholarship by an individual who is a candidate for a
degree at an educational organization described in section 170(b) (1) (A) (ii).
(1) In general: The term “qualified
scholarship” means any amount received by an individual as a scholarship or
fellowship grant to the extent the individual establishes that, in accordance
with the conditions of the grant, such amount was used for qualified tuition
and related expenses.
(2) Qualified tuition and related expenses for
purposes of paragraph (1), the term “qualified tuition and related expenses”
means—
(A) Tuition and fees
required for the enrollment or attendance of a student at an educational
organization described in section 170(b) (1) (A) (ii), and
(B) Fees, books, supplies,
and equipment required for courses of instruction at such an educational
organization.
(1) In general Except as provided in
paragraph (2), subsections (a) and (d) shall not apply to that portion of any
amount received which represents payment for teaching, research, or other
services by the student required as a condition for receiving the qualified scholarship
or qualified tuition reduction.
(A) The National Health
Service Corps Scholarship Program under section 338A (g) (1) (A) of the Public
Health Service Act,
(B) the Armed Forces Health
Professions Scholarship and Financial Assistance program under subchapter I of chapter
105 of title 10, United States Code, or
(C) A comprehensive student
work-learning-service program (as defined in section 448(e) of the Higher
Education Act of 1965) operated by a work college (as defined in such section).
(2) Qualified tuition reduction For
purposes of this subsection, the term “qualified tuition reduction” means the
amount of any reduction in tuition provided to an employee of an organization
described in section 170(b)(1)(A)(ii) for the education (below the graduate
level) at such organization (or another organization described in section
170(b)(1)(A)(ii)) of—
(B) Any person treated as an
employee (or whose use is treated as an employee use) under the rules of
section 132(h).
Paragraph (1) shall apply with respect to
any qualified tuition reduction provided with respect to any highly compensated
employee only if such reduction is available on substantially the same terms to
each member of a group of employees which is defined under a reasonable
classification set up by the employer which does not discriminate in favor of
highly compensated employees (within the meaning of section 414(q)). For
purposes of this paragraph, the term “highly compensated employee” has the
meaning given such term by section 414(q).
(5) Special rules for teaching and research
assistants In the case of the education of an individual who is a
graduate student at an educational organization described in section
170(b)(1)(A)(ii) and who is engaged in teaching or research activities for such
organization, paragraph (2) shall be applied as if it did not contain the
phrase “(below the graduate level)”.
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