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Researchers win some, lose some in final U.S. tax bill

The U.S. research community experienced both the thrill of victory and the agony of defeat in lobbying congressional Republicans as they wrapped up a major overhaul of the nation’s tax code.

Research advocates persuaded lawmakers to drop changes that would have eliminated a valuable tax break for companies that invest in research, forced graduate students to pay taxes on tuition assistance, and reduced incentives for investing in renewable energy technologies. But scientific, academic, and other groups failed to kill several other provisions, notably, a reduction in a tax break designed to encourage companies to develop drugs for rare diseases, the opening of the Arctic Wildlife Refuge in Alaska to oil drilling, and a new tax on the largest university endowments.

The release yesterday of the final version of the Republican-backed bill marks the end of a fierce but remarkably brief battle over the biggest rewrite of the U.S. tax code in decades. Both the U.S. House of Representatives and the Senate passed versions of the tax bill in the past month that had been drafted largely out of public view. No Democrats or Independent lawmakers voted for either bill. The campaign by science advocates included plenty of backroom maneuvering and some very public drama, including the Capitol Hill arrests of science graduate students who demonstrated against a plan to tax tuition waivers.

Tax bill opponents had to act quickly because House and Senate Republicans had promised President Donald Trump they would send him legislation to sign before the end of the year. Congress is expected to vote this coming week on the compromise unveiled yesterday.

The final measure makes a deep cut to corporate rates and, over a decade, will deliver a majority of its benefits to the most affluent individuals. The bill also eliminates the penalty individuals must now pay if they don't acquire health insurance under the Affordable Care Act, aka Obamacare, and sweetens a child tax credit for lower-income families. Many analysts estimate the bill will add at least $1 trillion to the national debt—now about $20 trillion—over the next decade (although some Republicans argue that the cuts will pay for themselves by boosting economic growth).

Here is how the battle over some research-related provisions turned out:

Orphan drugs

The 3-decade-old orphan drug tax credit will be cut in half. Current law allows companies to write off 50% of the research costs of developing drugs for diseases that strike fewer than 200,000 people. Now, the credit will drop to 25%. That is a partial win for drug companies and patient groups, because the House version of the tax bill had eliminated the tax break entirely. Still, patient groups fear that trimming the break will slow the development of new drugs. Critics of the credit, however, have argued that companies have abused it by claiming write-offs for drugs already in wide use.

Tuition waivers

A tsunami of graduate student activism helped convince lawmakers to drop a House provision that would have required graduate students to pay taxes on certain tuition allowances. Currently, graduate students are taxed on money they earn working in a laboratory or classroom, but not on tuition discounts they receive from a university, which can be worth tens of thousands of dollars. Analysts estimated that taxes paid by some students could double or triple under the provision. News that lawmakers had killed the provision prompted celebrations on social media. “We’ve been spared!” tweeted Alex Pawlowski, a doctoral student in energy science and engineering at the University of Tennessee in Knoxville.

Endowment tax

Wealthy universities failed to remove a new 1.4% tax on endowment earnings. The provision applies only to colleges with more than 500 students and endowments with at least $500,000 per student. The tax is initially expected to hit fewer than 30 colleges. The final bill also says the tax applies only to institutions with “more than 50% of the tuition paying students … located in the United States.” The schools have argued the tax will reduce the amount of money available for scholarships, internal research grants, and other initiatives.

Arctic oil drilling

Conservationists and climate activists failed to persuade legislators to drop a provision allowing oil drilling in Alaska's Arctic National Wildlife Refuge, home to one of North America's largest caribou herds. Conservation groups fear development will harm the animals, and scar sensitive ecosystems.

Renewable energy

Clean energy advocates won a fight to preserve tax breaks for wind and solar projects, and for some buyers of electric vehicles. But they failed to fully eliminate a provision that tweaks how the government taxes cash that firms transfer into the United States. Renewable energy groups are concerned that the change could reduce the flow of investment in green power projects.

R&D tax credit fix

Lawmakers dropped provisions that unintentionally undermined one of the nation’s most valuable research-related tax breaks. But the final bill will require companies to write off research-related expenses over a longer time period.

Under current law, companies are allowed to write off many of the costs associated with R&D, and they can take the deductions immediately, in a single year. But in a last-minute change, the Senate had inserted language in its bill that would have essentially gutted the credit, which has been worth some $7 billion annually to companies in recent years. Lawmakers removed that language, but changed the rules so that companies must write off their R&D investments over 5 or more years instead of in a single year.

Other provisions

House and Senate negotiators killed a House provision that would have allowed nonprofit research institutions to avoid taxes on income generated by research activities only if the results of the research were “freely available to the general public.” Currently, such income is sheltered from taxes, and the final bill preserves that protection.