Elon faculty, students bear weight of federal budget decision

President Barack Obama makes a statement following the passage of tax legislation by the House of Representatives on Jan. 1 in Washington, D.C. Photo courtesy MCT Campus.
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As the United States hung suspended from the “fiscal cliff” early this month, both the Senate and the House of Representatives approved legislation to raise taxes on America’s wealthiest and suspend deep cuts in federal spending, a complicated last-minute deal that may directly impact taxpayers in every income bracket, including Elon University students, faculty and staff.

By passing the legislation, Congress narrowly averted automatic tax increases and federal budget sequestration cuts scheduled to take effect at the start of the New Year, but the deal is likely to affect other changes in the economic climate. The Social Security payroll tax increased from 4.2 percent to 6.2 percent in the wake of the decision, marking the end of a two-year holiday that put a little extra money in the pockets of all wage earners.

“Faculty and staff paid biweekly will see the effects of that immediately,” said Gerald Whittington, senior vice president for business, finance and technology.

The stock market, unemployment rates and interest rates also hang in the balance of last week’s decision, which raised many questions about the country’s economic stability.

“I think given the period of uncertainty, if you’re a graduating senior, employers may be hesitant to hire,” Whittington said. “And if you had counted on getting a summer job and then returning to school, that may be more difficult to do.”

Families may also have to reevaluate their budgets. Whittington said some may look more critically at the cost of college.

“Those are quality of life impacts,” he said. “In extreme cases, some people may say ‘You cannot return to Elon, or wherever you’re going to college.’”

For individuals who earn more than $400,000 and couples who earn more than $450,000 annually, taxes on capital gains rose from 15 percent to 20 percent. The healthcare reform legislation added an additional 3.8 percent surtax, increasing the maximum tax rate on capital gains to 23.8 percent.

“A good portion of our student body has family income invested in various stocks, options and mutual funds,” said Student Government Association Executive President Darien Flowers. “We’re seeing significant taxation from the federal government, and if that is seen as income, then you get state taxed factored in. That will have a direct impact on the livelihoods of the percentage of students who see income from capital gains.”

The economic consequences of the decision are likely to affect Elon’s budget and revenue, as well. Moody’s Investors Services recently released a report forecasting “diminished prospects for revenue growth” for all institutions of higher education in the United States, including the most elite.

“The new sector-wide negative outlook reflects mounting pressure on all key university revenue sources, requiring bolder actions by university leaders to reduce costs and increase operating efficiency,” the report overview states.

Whittington said endowment spending to support the university’s budget will not be impacted in 2013, but the higher tax rates on capital gains coupled with stock market instability may affect endowment spending in the future.

The North Carolina Legislature also has a hand in the university’s financial situation. Two bills to reform state taxes and perhaps eliminate corporate income taxes are under consideration.

Some feel North Carolina’s 6.9 percent corporate tax rate deters businesses from installing plants or factories in the state. It is less expensive to do so in Virginia and South Carolina, where the corporate income tax rates are 6 percent and 5 percent, respectively.

But if the government eliminated the corporate income tax to bring more jobs into the state, other institutions would be forced to compensate for the lost income.

“Non-profit intuitions that don’t pay sales taxes or property taxes would have to pay those,” Whittington said. “For Elon University, that would be $3.5 million a year.”

If the state legislature decides to decrease the corporate income tax, Whittington said Elon may have to tighten its belt.

“We might have to try and reduce our own expenditures,” he said. “That means looking at all sorts of things, including less pay raises, new employees and new programs.”

Though Congress managed to prevent financial free fall, Whittington anticipates a bumpy road ahead.

“We’re going to be tossed, turned, pulled and stretched,” he said. “This has been years in the making, and you’ve got to make some really hard, critical decisions at the federal level, which will cascade to the state level. I can’t predict how it will end. In politics, all sorts of things happen.”

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