A few years ago, I was assigned the task of directing a Ph.D. program. Working with doctoral students was fantastic. Working with the bureaucracy assigned to oversee graduate training was... interesting.
Once a year I'd have a meeting in the office of the Dean of the Graduate School, to go over what was essentially a profit/loss statement for the program I directed. It would be just as accurate to call it more simply a loss statement, as doctoral training is a money-losing proposition. Students typically don't pay tuition, and they receive stipends (typically in exchange for work as research assistants or teaching assistants).
The profit/loss statement would always show a series of charges for tuition, offset almost entirely by credits for tuition waivers. At the time, I thought this was silly accounting. When you get right down to it, doctoral students don't pay tuition -- at least when enrolled at major research universities. We maintained this accounting fiction of charging them tuition but then immediately reversing the charge with a waiver.
It is the value of this tuition waiver that the House of Representatives just voted to include in a graduate student's taxable income. Graduate students have, understandably, expressed concern that paying taxes on income that they don't actually receive will impose a big hit on their meager finances.
Universities could respond, however, by ending the accounting fiction and declaring that their doctoral programs are tuition free. Why don't they just do that? Well, it turns out that although the students themselves are seldom charged tuition, a third party often pays it on their behalf. If universities modify their tuition policies to save graduate students an income tax hit, universities themselves will sustain a hit -- a potentially much larger one.
When a faculty member obtains a grant for a research project, it's very common to use the proceeds to pay a stipend to a doctoral research assistant. If a grant pays a stipend to the student, the expectation is that the funding agency -- quite often the Federal government itself -- will pay tuition on behalf of that student as well.
So while the popular press has portrayed the proposed taxation of tuition waivers as an assault on graduate students, it may be more accurate to say that Congress is holding graduate students hostage and demanding ransom from universities. "Cut the tuition rate you charge the government," Congress is effectively saying, "or we'll tax your students." Perhaps with the net result of driving graduate students -- many of whom come from abroad -- to universities outside the United States.