Message from the President and Provost on the Federal Tax Bill

To: The Caltech Community
From: Thomas F. Rosenbaum, President
           David A. Tirrell, Provost
Date: January 2, 2018
Re: Federal Tax Bill


When we wrote to you in November about the pending federal tax bills, we were responding to concerns expressed by our faculty, students, and staff. Some of those concerns were personal, triggered by the possibility of increased personal tax liabilities, while others were directed toward the potential impact of the legislation on higher education and research and on Caltech in particular. In the interim, the Institute has joined universities across the country in making the case for support of educational opportunities for our community. Of the three legislative provisions we highlighted in our message, only one—imposition of an excise tax on a small number of university endowments—survived the reconciliation process. Graduate tuition waivers will remain tax-free and tax exemptions for tuition assistance programs will remain in place.

The excise tax provision will impose new costs on Caltech and on roughly two dozen of our peer institutions. Elite research universities and small liberal arts colleges are preferentially penalized. We do not yet know exactly how the provision will be implemented, but the impact is likely to be in the millions of dollars per year range. The fact that the legislation targets so specifically such a small number of institutions is unusual, and suggests that we must communicate more effectively—to the public and to decision-makers in Washington—the critical role that higher education plays in sustaining the health of the nation: in advancing our understanding of physical and social systems, in creating new technologies and opportunities for employment, in preparing our technically educated workforce, and in fostering U.S. economic competitiveness. University endowments enable all of these activities. At Caltech, for example, the largest expenditure of endowment income is directed to financial aid for students, our hope for the future. Endowment funds allow us to offer admission to qualified undergraduate students on a need-blind basis, to support graduate students on fellowships that afford them maximum flexibility in defining and pursuing their research interests, and to explore high-risk, innovative research programs. Together, we must redouble our efforts to communicate the value of what we do and to make the case that we steward our resources wisely for the public good.