I have made frequent reference to a 1989 internal document at the National Science Foundation, our federal government’s primary science agency. The author pointed out that liberalization of immigration policy pending at the time (the bill, which among other things established the H-1B work visa, was enacted the following year) would, in essence, drive American students away from STEM graduate study, as the foreign influx would suppress wage growth for doctorate holders. This forecast proved to be correct.
I’ve also pointed out that the prevalence of international students would grow even further if “Staple a Green Card to Their Diplomas” legislation were to be enacted, under which all foreign graduate students in STEM would in essence receive automatic green cards.
The tax reform plan passed this week by the House would have the effect of making U.S. universities even more dependent on foreign students, because it would count as taxable income the tuition waivers given to most PhD students. How so? Well, a little known fact is that most nations that send large numbers of foreign students to the U.S. are covered by a tax treaty. For instance, students from China and India, the two nations with the largest foreign student populations in the U.S., are basically exempt from paying income tax.
In other words, some American students who would otherwise have pursued a PhD would now choose not to do so, while there would be no impact on the international students. Result: Universities would depend even more on foreign students than they do now.
I am neutral on the tax bill (though I oppose Staple and think the number of work visas sand employment-based green cards should be reduced), as I simply don’t know enough to have a truly informed opinion. But there would be an adverse effect on something on which I am quite well-informed, as explained above.
Update, November 22: As I mentioned above, the tax code is extremely complex. My analysis above is oversimplified. Apparently foreign students are not completely exempt from paying tax, though post docs apparently are. But clearly, the impact would be as I described, though possibly much smaller in general.
Also, the universities could react to this aspect of tax reform in various ways, such as declaring research assistantships as scholarships, which are not taxable. MozView points out that then the universities would not be able to require the students to do research, but that is not a problem; the students are doing the research for their PhD dissertations, so they have to do the work anyway.
Also, most universities have a status known under various names, e.g. Advancement to Candidacy, bestowed when a PhD student has completed coursework and is now just doing his/her research. Under that status, students pay greatly reduced tuition. My guess is that universities will simply relax the rules on that status.