Outside of FICA/Social Security, would a graduate student living on a stipend and in-kind tuition really have federal income tax liabilities if this money was classified as income? They would have to be "making it rain" in other ways for this to really matter.
Did you look at the spreadsheet provided by the OP?
I get it...
Its similar to when I looked into getting my MBA, two years was going to cost around $90,000 in total. My employer would pay $81,000, leaving me with $9,000 to pay. Except for that $81,000 became additional tax liability. Fortunately I live in Texas and am already over the social security cap, it still would have cost me a tax outlay of $22,680.
Well the difference I see in these two scenarios is that your employer transferred $81,000 to a university to pay for your MBA. With a tuition waiver there's no transfer of funds. Its unfortunate that those funds increased your taxable liability, and personally I don't believe that should be the case. If I were to go get an MBA I would have to pay the university $81k as well.
It's hard to believe that someone gets a free burger doesn't relize that somebody had to pay for the hamburger, bun, lettuce, tomato, ketchup. And in order to buy these they paid taxes usually first.
I believe there's a fundamental misunderstanding of how graduate students are paid here.
The most common method is through grants. Here's a typical example using numbers taken from our most recent grant.
Prof MMM from M-University was awarded a 3 year federal grant. That grant had salary "stipends" for two PhD students at the university required $24,000/year. Per university-bartering agreement the 4th year of stipend will come out of the operating budget of the department.
Now all universities and research institutions charge overhead on their grants. 30% is pretty typical (though more and more are edging above 40% with cuts direct state and federal aid). Overhead pays to keep the university running - what I believe you were referring to with the bun, lettuce, onions, etc. It helps cover the costs for teh building and utilities, staff salaries, equipment etc.
2 students x 3 years x $24,000 = $144,000 + $43,200 = $187,200. That's just for those two students, and its analogues to payroll in a private business. that money is all taxed (e.g. FICA/SS and state and federal income tax). The remaining budget in the grant (also subject to the 30% overhead) pays for everything else; lab equipment, travel, publication fees etc. Often part Prof MMM's salary will also come from the grant (called "soft money" - or non-guaranteed salary). This is also why graduate students bring in more money than they cost in expenses, and a core reason for not charging them for tuition.
In return for their stipend the graduate students are contract employees for the university, typically owing 20 hours/week teaching classes and running the labs.
At no point is there money coming into the unviersity coffers for tuition, nor are there additional funds appearing in the grad-students' bank accounts.
Some people obviously see no problem with this particular tax proposal, and if after reading these arguments and the OP's data if that's still the case we'll just have to agree to disagree.
Personally my issues with it are two-fold
i) I believe its wrong to place such a large tax burden on people who's take-home pay is around the bottom quartile mark. It's even more egregious when that money is being paid from anyone to any other entity.
ii) its net effect will be to cut funding from higher education. Admittedly this is a philisophical argument but in general I do not support proposals which reduce funding for advanced education, and I particularly oppose the when they do so by making it more expensive for students to get a masters or PhD.