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Student seeks grad tax appeal

By Linda D'Angelo

House Bill 4809 -- written by MIT chemical engineering graduate student David L. Wagger in an attempt to repeal the state tax on graduate stipends -- will be heard on March 14 by the Massachusetts Legislature's Joint Committee on Taxation. Specifically, the bill would exempt research assistant and fellowship stipends from the state law enacted last July.

Before Jan. 1, 1987, graduate students had a tax loophole; any work that was part of a degree requirement, even if salaried, was not subject to tax, according to Dean of the Graduate School Frank E. Perkins '55. However with the enactment of the Federal Tax Reform Act of 1986, graduate stipends became taxable income at the federal level.

The state of Massachusetts followed this lead when, last July, state law was changed. Chapter 106 -- a "widely unknown" piece of legislation according to Wagger -- updated state tax law to conform to the Reform Act of 1986, retroactive to Jan. 1, 1988. For the first time RA's and fellowships were subject to a five percent state tax.

The new law created problems, some immediate and others more long-term. Since the state was "in the black" financially, institutions had "no idea" that such a change was approaching and so did not take any economic precautions, according to Wagger. Furthermore, the law was retroactive. Thus graduate students were responsible for taxes beginning in January even though the law was not passed, and the tax/money was not withheld by institutions, until July. For these reasons graduate students found themselves financially unprepared, but still responsible.

Chapter 106 "could also hurt research opportunities" for graduate students, according to Wagger. He said the law is probably "more of a burden on other students, outside of MIT, who don't get the type of financial support we do." Twenty thousand of the state's 70,000 graduate students attend state universities which receive a "minimal fraction" of the state budget, he commented.

Perkins believed that the law will "have an effect on the quality of life of graduate students. To the extent that institutions cannot adjust, the students must struggle more." The new state law "adds another burden to an already burdensome load," he said.

Since graduate students bring "both research and talent to local industry," the state itself might suffer from the new tax law, according to Perkins. A state as high-tech oriented as Massachusetts should be encouraging graduate education not building "roadblocks," he commented. Wagger also said that the law would hurt the state "in the long-run, as graduate students support the state's technological development."

Both Perkins and Wagger also felt that the law represents an underlying change in the national environment. Any one event, such as this new tax law, can be adjusted for, Perkins said. But, he believed, real problems can result when several events combine to create a national climate.

In this way the Federal Tax Reform Act of 1986, the subsequent Massachusetts law, and the decline in "US interest in graduate education, especially in sciences and engineering," may represent a devaluing of graduate education, Perkins said. Negative effects may result as "the economic well-being of the US depends on having a solid graduate education system," Perkins noted.

Wagger contended that the law is "neither cost effective nor cost efficient." At most the tax will raise $19 million in revenue for the state, a relatively small amount according to Wagger. Furthermore there are "hidden costs" involved in administering the new tax law, such as paperwork and overhead, which lessen the financial gain, he said.

Thus, Wagger believed that "the benefit to the state is less than the harm to graduate students." For this reason he wrote House Bill 4809 which would require the federal tax code, before the Reform Act of 1986, to be applied to state tax law regarding graduate students.

Submitted through Rep. John Flood (D-Canton), the bill will be heard by the legislature's Joint Committee on Taxation on March 14. Wagger and Perkins will testify and, although "hopeful", both realize that certain issues must be addressed before the bill can pass.

"Given the state budget problems," and the difficulty in "making a change for what is perceived to be a small, elitist group," it will be hard to convince the legislature of the commonwealth's benefit if the bill is passed, Perkins said. Thus he and Wagger are soberly optimistic. "Getting the bill this far is an accomplishment, but the prospects for passing are less than half due to the current fiscal climate," Wagger noted.

The deciding factor, according to both men, is support from graduate students; "it's up to graduate students to make this happen," Wagger said. Perkins, a self-proclaimed "great believer in grass roots efforts," is encouraging graduate students to "write to the state legislature," and to attend the March 14 hearing if possible.