Oct 30, 2011

Should grad student stipends be tax exempt?

There's a petition on the Whitehouse website to make grad student stipends tax exempt. Stipend amounts that go to educational expenses (tuition, books, etc.) are already exempt, so this change would affect the remainder of stipend income. The motivation for the petition is apparently to encourage more people to attend graduate school.

I find this very hard to understand. What evidence is there of a supply shortage of graduate students? Even average grad programs get 10, 20 or 30 times more applicants than they can admit. Since federal taxes on grad stipends are in the area of 10% per year, removing those taxes would only increase grad student income by a small amount. That means that the applicant pool would at best be increased very slightly, and there would probably be little to no impact on the quality of the applicant pool overall.

While there is no supply shortage of graduate students, there is obviously a supply shortage of academic jobs for graduate students relative to the demand for those jobs. Making grad school more attractive-- which is what the petition would accomplish if successful (which I doubt, as explained above)-- would only make the problem worse, or at least not make it better.

Why should a graduate student making $30,000 a year should be exempt from income tax when a high school teacher, bank clerk, or secretary making the same salary receives no such exemption?

The petition has some vague rhetoric about needing to increase interest in grad school to remain competitive in the sciences, but it's difficult to see where the problem is. Top American research universities-- places like Harvard, Stanford, MIT, Berkeley, University of Michigan, Cal Tech, etc.-- are among the best in the world, and American students considering an advanced degree in a science or engineering discipline rarely choose foreign universities over these elite domestic ones.

What about students who are deciding between pursuing a science or engineering degree and entering the workforce in one of those fields after obtaining their Bachelor's? Again, what evidence is there that too many students are taking jobs rather than getting advanced degrees in science or engineering? And what evidence is there that science is being held back by some Physics majors getting jobs in finance or consulting rather than pursuing graduate degrees?

The only reason I can think of to worry about the supply of grad students is in attracting non-American students to American graduate programs. But that issue seems to revolve much more around immigration issues (like how difficult it is to obtain the right kind of visa) than around salary. Anyone even thinking about a technical advanced degree will already be considering American universities. If the visa issues are resolved, I don't see the added benefit of making grad stipends tax exempt.

You can read the text of the petition yourself, and see what you think. From where I stand, it's a non-solution in search of a problem.