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New Tax Plan Contains Even More Bad News for Student Borrowers

The Republican plan to crush students further unmasks the con of the Trump campaign

New Tax Plan Contains Even More Bad News for Student Borrowers

Butch Dill/AP

The headline in the New York Times seemed sympathetic: “The House Just Voted To Bankrupt Graduate Students”.

The piece by Erin Rousseau, a graduate student at M.I.T., detailed an insidious little virus buried in the Tax Cuts and Jobs Act, just passed by Republicans in the House. The law would repeal section 117(d)(5) of the tax code, which exempts graduate students’ tuition waiver from taxation.

In the case of M.I.T. grad students like Rousseau – who work as teachers or lab assistants – the new law would tax over $50,000 of tuition they don’t actually pay. It would increase such students’ taxable income from the area of $33,000 to over $80,000. In most cases, that would add about $10,000 to their annual tax burden.

Getting already-struggling students to cough up $10,000 more would pay for the big-ticket item in the Trump tax plan: a reduction in the corporate tax rate to a flat 20 percent, down from a top rate of about 35 percent.

The reduction in the top corporate rate is more or less totally symbolic already. It’s a fraud. The biggest and most successful of our transnational corporations already pay virtually nothing in American tax as it is, usually by moving profits to offshore havens.

The Senate Permanent Subcommittee on Investigations, which over the years has been one of the best crews of financial detectives in the country, did a study on Apple a few years back.

They found that between 2009 and 2012, about $74 billion in revenue was reported by an Irish subsidiary of the American tech giant called Apple Sales. In 2011, that subsidiary paid a tax rate of one five-hundredth of one percent. In 2014, the EU found Apple paid the same tax rate in Ireland – 0.005%.

Other giant corporations like Facebook, Google, and Amazon have reportedly also been using the Irish-subsidiary trick. If you’re wondering why there are no bookstores anymore, one reason might be that bookstores pay far more tax. The EU found that British bookstores pay on average 11 times the amount of tax that Amazon does.

This is only one example out of countless loopholes that exist in the current global economy. Between rampant tax avoidance and similarly rampant tax evasion, the largest firms give almost nothing back to the societies whose customers they gouge.

That’s why bills like this new Republican-sponsored tax reform concept going through congress are not, really, about lowering corporate taxes.

Instead, they’re about finding new ways to squeeze the population for tax. After all, someone has to fund the government!

Demonstrators hold signs during a rally against the GOP tax plan in Washington, D.C., U.S., on Wednesday, Nov. 15, 2017. Senate Republicans tacking on a repeal of the Obamacare mandate that people have health insurance to tax overhaul plan is the 'mother of all monkey wrenches,' Senate Democratic leader Chuck Schumer said.

Since those funds can’t come from companies like Apple, Google, Facebook and Amazon, new ways have to be found to siphon money out of a working population already stretched to the limit.

Hence this new provision for soaking grad students. As detailed in the recent issue of Rolling Stone, a significant portion of higher education students are already staring down the barrel of a lifetime of severe economic difficulty, thanks in large part to student loans. Collectively, they are a lemon that has already been pre-squeezed a hundred times over.

The new Republican tax plan will squeeze it one more time, forcing students to pay enormous tax bills on money they don’t even receive. This will add to miseries many will suffer once they get out of school, when they will be saddled with huge debt burdens, from which there is no escape.

Which brings us to the irony of the Times headline about how “the House Just Voted to Bankrupt Students!” This was surely unintentional, for the Times was trying to portray students as victims. But one thing was overlooked: “There is no bankruptcy!” says Alan Collinge, of StudentLoanJustice.org.

Collinge’s point is that student borrowers are unique in their inability to declare bankruptcy.

Hence the irony of the Times headline. It’s so much worse even than described. Many students wish they could be bankrupt!

While the President of the United States can declare bankruptcy six times over, and the Fed can spend as much as $29 trillion bailing out companies who trashed the economy in 2008 (this was the calculation done by the Levy Institute, which among other things tracked toxic asset purchases), broke ex-students cannot ever get out from under their debts.

Another way the new tax bill would squeeze the student lemon again is by killing the student loan interest exemption.

Many students are allowed a deduction up to $2,500 to cover interest on their student loan payments. As detailed in that Rolling Stone story, many students before long are so overcome with fees that they are reduced to only paying interest, and never touching principal.

Killing the interest exemption for student borrowers would likely send many ex-students and/or their families over the edge. As one borrower put it to me this week, “You start to feel overwhelmed.”

The pressure on student borrowers has gone beyond the point of abject cruelty. Twenty different states now have laws that allow the government to revoke the drivers’ licenses of people who default on their student debt.

State power to extract every last cent from student borrowers is employed in the most aggressive conceivable fashion. I talked to elderly people who had their social security payments attached. A common theme in the interviews I did for the recent RS investigative feature was the absolute certainty among many debtors that they would go to their graves still owing their student lenders. For most, just the idea of eventually paying down some principal was a dream.

The decision to crush students in this new bill is part a larger issue that has to do with the basic con of the Trump administration.

As a candidate in 2015 and 2016, Donald Trump ran against “globalism.” In his major policy address of April, 2016, Trump declared that the “nation-state,” not the international order, was the “true foundation for happiness and harmony.”

For some of Trump’s supporters, maybe even most, the big fear about “globalism” had to do with nativist/racist fears of open borders.

US President Donald Trump kisses a sample of the proposed new tax form as he meets with House Republican leaders and Republican members of the House Ways and Means Committee at the White House in Washington, DC, on November 2, 2017.

But another factor – and I heard this repeatedly on the campaign trail – was a belief that Trump was taking on a Washington elite that had essentially become a proxy for “global” interests.

Most Trump voters didn’t have a sophisticated idea of what “globalism” was, but they hated it anyway.

For some of those voters, “globalist” was just a euphemism for “Jewish.” For others, globalism meant rape-happy Mexicans pouring over the border.

For still others, “globalism” meant auto factories being moved overseas or to Mexico to take advantage of cheaper labor.

Trump hammered that latter theme regularly. He also repeatedly hit on the idea that the Democrats’ vision was a “borderless” world where “working people have no power, no jobs, no safety.”

Trump as a candidate in other words appropriated the entire spectrum of fears about the global economy.

In office, however, he has only delivered on the racist/nativist portion of his anti-globalist mandate, with his idiotic travel ban idea and his much-ballyhooed but still-unfunded Mexican wall.

The rest of his presidency has seen a marked acceleration of all the worst things he claimed to be concerned about. This new tax plan is a classic example.

One of the true conundrums of the global economy is how to get transnational companies to pay taxes within the existing system of nations when they can move capital and profits around the globe at will.

Similarly, high net worth individuals (like Trump himself and like many of the best-paid CEOs) have an astonishing array of legal tax loopholes they can utilize, from the carried-interest break to estate tax loopholes to the freezing of trusts to the gaming of capital-gains rules to dozens of others.

As Jesse Drucker reported years ago, this is how the 400 people with the top adjusted gross incomes went from paying an effective 30 percent rate in 1995 to 18 percent in 2008.

So with the global economic system riddled with loopholes for corporate taxpayers, and with our own domestic code a similar Swiss cheese of legal exemptions for rich jackasses like Trump, the meaning of the “nation-state” has increasingly been denuded.

A “nation” will soon just mean a geographic protectorate within which the localized incomes of the less wealthy are trapped and taxed at inflated levels.

This new Republican bill represents that vision with perfect cruelty. If you don’t have the means to move your money abroad, they’re showing they will just keep finding ways to take more – even if you’re already struggling, like grad students and student debtors.

Increasingly, this is what it will mean to be an American: a person who pays inflated tax to subsidize the companies and one-percenters who don’t. Are you feeling proud yet? 

Editor’s note: This article has been updated to reflect the fact that 117(d)(5) doesn’t give grad students a tuition waiver – it exempts the tuition waiver from taxation.

In This Article: college loans, Donald Trump

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