Letter to Congress on tax legislation
This is one of 16 letters sent to House and Senate leadership as well as the Maryland congressional delegation
November 30, 2017
The Honorable Orrin Hatch
United States Senate
104 Hart Senate Office Building
Washington, DC 20510
Dear Senator Hatch,
On behalf of The Johns Hopkins University and The Johns Hopkins Health System we write to share our serious concerns regarding HR 1 and the Senate companion effort to reform our nation’s tax code. As leaders of large and complex organizations, we understand federal policymakers’ desire to reform and simplify the tax code to strengthen economic opportunity. However, as leaders of non-profit charitable institutions, we have serious concerns with a number of provisions set out in the proposed legislation and believe they will impede our ability to execute on our mission—to provide world-class education, research and patient care—by substantially increasing our costs through additional and unwarranted taxation.
The Johns Hopkins University and The Johns Hopkins Health System trace their origins to Johns Hopkins, a Baltimore merchant who, at his death in 1873, left a bequest of $7 million to be divided equally between a new university and a new hospital. To this day, our university and health system honor our founder’s wish to support education and healthcare for the “good of humanity” and provide for those most in need. Our institution is ranked among the world’s leading research universities and most highly regarded providers of health services. We also are an enormous engine of economic growth and activity in the region and on a national and global stage. As you consider changes to the tax code, we urge you to exclude provisions that will have a detrimental impact on our institution, such as those highlighted below.
Repeal of proposals supporting students and families seeking higher education and training
Especially concerning is the proposed elimination of a number of tax provisions that are critical to enabling students and their families to access higher education.
Repeal of the tax exemption for graduate student tuition waivers in Section 117(d) would increase the cost of education for approximately 1,700 Johns Hopkins students, and many more across the country, who work as teaching or research assistants in a wide range of academic disciplines and will now find their graduate studies more difficult to complete, or entirely out of reach. In addition, eliminating the tax deduction for interest on student loans will further increase the cost of college for those who have already made this important investment in their future and may in turn impact career choices or delay important life expenditures, such as a first home.
￼These and other tuition-related provisions will also detrimentally increase costs for employees whose dependents attend college or who themselves pursue additional education and training to enhance their skills for the 21st century workplace. Hundreds of our employees use the Section 127 benefit to pursue additional training for current positions or ready themselves for advancement. In addition, each year approximately 1,450 dependents of our employees use our tuition grant to attend college. Nearly forty-five percent of these employees earn less than $80,000 per year, and they rely upon the tax-exempt nature of this benefit under section 117(d) to save for college and manage their family budgets. For many, this benefit is what makes higher education possible for their children, and it is been a vital tool for recruitment and retention of our dedicated workforce.
New excise tax on endowments at private colleges and universities
We also strongly oppose the imposition of a new 1.4% excise tax on private college and university endowments. Johns Hopkins was founded through the generosity of a single donor who sought to provide his community with a world class university and a hospital that would serve all who sought care. Since then, many others, from all walks of life, have made mission-critical philanthropic contributions to support Johns Hopkins through endowed gifts.
The vast majority of Johns Hopkins’ endowed gifts are designated by the original donors for specific purposes which we are committed to fulfilling. Donors have given Johns Hopkins endowment gifts to support the discovery, teaching and clinical care efforts of our renowned faculty, to increase educational access for all students regardless of means, and to answer important scientific questions and support innovation in the delivery of clinical care and treatments. The proposed excise tax, if applied to Johns Hopkins, will immediately reduce funds for our students and faculty and will unavoidably slow the progress of critical research that saves and improves the lives of all Americans.
Moreover, as currently drafted, the asset test for imposition of this new excise tax appears to reach beyond funds held in an endowment and would penalize institutions who exercise prudent financial management and hold other assets (such as cash and short-term investments outside of an endowment) to ensure the smooth and continuous operations of their institutions.
Repeal of credits for economic development and infrastructure
Repeal of the New Market Tax Credits (NMTC) as proposed in the House bill, and repeal of the historic preservation tax credit in the Senate bill, will have a devastating impact on the ongoing renaissance of Baltimore City and other economically distressed communities across the country.
Johns Hopkins is proud to be a leading anchor institution in our community, and as such we work closely with private sector partners to preserve and revitalize neighborhoods throughout our city.
￼Recent use of this tax credit enabled construction of the first new elementary-middle school in East Baltimore in over 40 years—the Henderson-Hopkins School—as a unique partnership between the public school system, Johns Hopkins and Morgan State University. The credits were also crucial to construction of a state of the art hub for innovation and entrepreneurship just north of our medical campus and renovation of two historic theaters in central Baltimore, bringing new opportunities for scholarship, engagement and economic activity to previously neglected areas of our city. The availability of NMTC has been indispensable to this work and leveraged significant private investment.
Similarly, the House proposal to eliminate private activity bonds and the House and Senate proposals to terminate advance refunding bonds will increase the cost of providing facilities and equipment that enable us to educate students, perform groundbreaking research and provide outstanding care for our patients. Access to this funding has been critical for two new clinical towers at Johns Hopkins Hospital, our comprehensive cancer center, and acquisition of technology and equipment that enhances patient care (such as MRI machines, ultrasounds, NICU infant warmers and incubators). As a non-profit enterprise, we operate on slim margins and must manage our limited resources prudently. In this environment, private activity bonds are an invaluable resource that have allowed us to construct vital infrastructure and meet the ever- growing needs of our community, patients and students.
Taxing non-profit activities
Several provisions in the Senate bill also appear to single out non-profit entities like Johns Hopkins for particularly onerous tax treatment.
For example, the Senate proposal to tax income we derive from the use of our name and royalty agreements is overly broad. Income we derive from royalties associated with use of the Johns Hopkins Medicine name globally is inextricably linked to our work in bringing the expertise of our medical faculty and health care system to nations around the world. We strongly suggest that this work is distinct from more commercial or for-profit-like activities that policymakers seek to subject to taxation.
In addition, the bill includes a so-called “basketing” provision that would require all losses and gains for taxable unrelated business activity (UBIT) to be calculated by each separate activity rather than in the aggregate. This provision is more burdensome than the rules applied to for-profit entities and would not only be likely to increase our tax liability but also impose on us a significant new and costly administrative burden.
Finally, we have serious concerns about the proposal to eliminate the individual mandate without a broader solution to health care reform.
￼In isolation, CBO estimates that repeal of the individual mandate will result in a loss of coverage (through Medicaid and private plans) in the range of 13 million by 2027. Johns Hopkins and other safety-net providers who serve disproportionately high numbers of low-income individuals and patients with complex health needs would be under increased pressure and see uncompensated care costs rise as more uninsured or underinsured individuals seek care for a health crisis or need substance abuse services.
As you undertake the final stages in the legislative process for broad tax reform, please know that we appreciate the difficult choices policymakers must make during consideration of comprehensive measures like this one, but nonetheless urge you to consider the long-term cost implications for non-profit institutions such as Johns Hopkins. As the largest private sector employer in our city and state, and a world leader in education, research and patient care, Johns Hopkins is an indispensable contributor to the local and national economy and to the advancement of science and humankind. We estimate that the current tax reform proposals, taken as a whole, would impose tens of millions of dollars in increased tax liabilities and other economic harms on Johns Hopkins institutions and our employees and students. Resources that would otherwise be devoted to support for our students, faculty, scientists, patients, and the community around us and, in the case of our employees, invested in their own and their children’s educational and professional advancement.
As always, thank you for your service and for your consideration of Johns Hopkins. Please do not hesitate to call upon us if we can be of assistance to you or your staff in your work.
Ronald J. Daniels
Johns Hopkins University
Paul B. Rothman, M.D.
Dean of Medical Faculty
CEO, Johns Hopkins Medicine