This isn't about dubious tactic at all, if the government thinks its dubious it could simply direct NSF/NIH to disallow amount from being used to pay tuition an

This isn't about dubious tactic at all, if the government thinks its dubious it could simply direct NSF/NIH to disallow amount from being used to pay tuition and lower overhead allowed. You don't even need any legislation for that. In fact PhD's are merely a collateral damage in ending tution tax exemption which affects all students (and represents a much larger chunk when you account for number of undergrads). It's just that in other cases "per-student" effects are much lower, since either the student has no income or the lack of exemption mere dissuades parents from filling jointly.