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Letter regarding the new federal tax bill and its impact on MIT

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The following email was sent today to the MIT community by President L. Rafael Reif.

To the members of the MIT community:

As Congress was shaping its tax legislation, I wrote to you about possible provisions that would have damaging effects on the Institute and members of our community. Now that the bill is final, I offer an update.

In our community, as elsewhere, people hold a range of views about the tax bill as a whole. It is my responsibility to let you know the bill’s immediate consequences for MIT.

  • No new tax on tuition remission for graduate students

First, some very good news. The final bill does not include the provision that would have had the harshest and most immediate impact on thousands of members of our community: the proposal to treat tuition remission for graduate students as taxable income.

While our students enjoy the relief of this moment, I hope they will also accept our admiring congratulations; this good outcome resulted in no small part from the persistent advocacy of our graduate students and their peers across the country. They organized phone banks to Congress. They wrote op-eds. They did interviews. They blogged, they tweeted, they coordinated with students at other schools — and together they made clear that the proposed tax could derail not only thousands of individual careers, but the nation’s strength in science and innovation. I am grateful for both their success and their example.

Further credit is due to Chancellor Cynthia Barnhart and other senior MIT leaders, who worked to keep our students informed, and to MIT’s Washington office as well as many alumni and MIT Corporation members who also strove to make sure this proposal did not appear in the final bill.

  • New tax on MIT's net investment income

Unfortunately — despite extensive efforts by MIT, on our own and in concert with peer schools — the tax bill does include a tax on the net income from the endowment and other investments of about 30 schools that meet a certain endowment threshold, including MIT.

According to our current analysis, this new tax will cost MIT at least $10 million a year. I have asked Provost Marty Schmidt and Executive Vice President and Treasurer Israel Ruiz to develop options to meet this new tax obligation while minimizing its impact on MIT’s capacity to serve its mission.

This is the first time that Congress has taxed university endowments, and the first time it has targeted a tax at specific universities. As an offset for a bill that will cut $1.5 trillion in taxes over ten years, this tax is expected to bring in less than $200 million in revenue annually.

However, it will reduce MIT’s ability to undertake exactly the kind of activities that Congress wants us to pursue — extensive financial aid for students, innovative education, pioneering research — the same activities that MIT’s alumni and friends have so strongly endorsed for many decades through contributions to our endowment.

It is clear that we must do a better job of convincing lawmakers that the work of MIT and other research universities — maintaining America’s scientific leadership, fueling innovation, creating prosperity and educating leaders — is vital to the national interest, and that, from need-blind admissions to life-saving research, we are focused on advancing the public good.

I look forward to working with you to convey this important message, while MIT continues to carry out its timeless mission, to the enduring benefit of the students we teach and the nation we serve.

You can find more detail about the impact of this tax and other provisions of the bill in this interview with Vice President for Research Maria Zuber and Executive Vice President and Treasurer Israel Ruiz.

Beyond the immediate consequences of the tax bill, I draw your attention to a possible issue on the horizon. If the federal budget deficit increases, over time this will likely trigger calls for federal spending cuts, including cuts to research. As I have argued many times — from the Wall Street Journal to Foreign Affairs — such cuts would be a matter of mission-critical concern for institutions like MIT, with harmful repercussions for our country.

On all these questions, we will closely monitor developments in Washington and keep you informed as appropriate.

I urge each of you to do all you can to help the public understand that research, education and innovation are the signature investments of a nation that believes in its future.

L. Rafael Reif

Press Mentions

Bloomberg Television

Bloomberg's Tom Moroney spoke with MIT President L. Rafael Reif about the tax bill's impact. Describing the tax as a "budget cut" for MIT, Reif emphasized higher education's vital role in America's innovation economy and said it's counterproductive, "to hurt the institutions that create innovation, create startups, and prepare people for those jobs."

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