The Congressional Tax Plan is a Half-Measure Improvement for Medical Researchers

Earlier this week, both chambers of the United States Congress ushered through a bill to drastically transform American tax policy. That reconciled bill is soon headed to the White House with a couple of added provisions that both maintain conditions for graduate researchers and reinstate a fraction of the Orphan Drug Tax Credit, a research incentive used to develop groundbreaking treatments for rare diseases.

The initial bill, since renamed “To provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” passed by the House of Representatives had a provision that would impose a tax on tuition waivers that graduate students receive from their universities.

Currently, graduate students are taxed on the monetary stipends they receive from their academic institutions. The House bill sought to change that by counting tuition waivers as income, effectively pricing thousands of graduate students out of their academic institutions. The Senate passed their version of a tax bill that did not make any changes to the way tuition waivers are taxed.

During reconciliation negotiations, the House and Senate removed the tax on tuition waivers from the final bill. ASGCT strongly supports the removal of the tax on tuition waivers.

“Taxing tuition as income would have devastated graduate students and ultimately the public who depend on these findings to generate new therapies,” Dr. Nicole Paulk, ASGCT Trainee Committee Co-Chair, Scientist at the Chan-Zuckerberg Biohub, and Assistant Adjunct Professor of Biochemistry & Biophysics at UC-San Francisco, says.

Graduate students play a crucial role in finding potential cures and developing cutting-edge science. An excessive tax would harm their livelihood and the future of such cures and discoveries. The fact that universities waive tuition expenses for graduate students is an acknowledgment that graduate students are performing an essential public service.

“Investments in the NIH, early investigator grants, and programs that train physician-scientists like the Medical Scientist Training Program, are crucial investments in future life-saving therapies,” Alexander Jares, ASGCT Trainee Committee Co-Chair and MD/PhD candidate at Stony Brook University School of Medicine, says.

It is promising to see that Congress also views this work as a service to society by ensuring that graduate students are only taxed on the income they actually receive. This tax would have inhibited scientific research in the United States, leaving our nation at a significant competitive global disadvantage.

Also in the Bill…

The conference committee also reconciled the difference between the House and Senate versions of the tax legislation regarding the Orphan drug Tax Credit (ODTC). The ODTC currently allows drug manufacturers to claim a tax credit of 50 percent of the qualified costs of research and development of treatments for rare diseases. The tax legislation reduces the ODTC rate to 25 percent of qualifying development costs.

The reduction of the ODTC negatively impacts the gene and cell therapy fields. While ASGCT is relieved that the ODTC was not completely eliminated, as was proposed by the House version of the bill, the Society is concerned about its reduction.

Many rare diseases are serious or life-threatening, and few have currently-available treatments. Gene and cell therapies, now approved for the treatment of certain blood cancers and a certain types of retinal dystrophy, holds substantial potential to provide vital treatments for rare diseases often caused by genetic mutations.

Gene and cell therapies may produce durable or potentially curative results with as little as one dose. However, years of research may be necessary to arrive at an effective approach, and the small pool of patients with a particular rare disease available for clinical trial participation may further extend the time frame to attain market approval. Such challenges to the innovation of gene therapies for rare diseases need to be balanced by incentives to develop these crucial therapies.

ASGCT is disappointed that the tax legislation reduced the ODTC rate to 25 percent and encourages future efforts to create new incentives for rare disease drug development to compensate for the decreased incentive offered by the ODTC.

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