The nation’s most “elite” universities and colleges have been in the crosshairs of Republicans, who have most recently made pro-Palestinian activism on campuses a political rallying cry. Now, there is an appetite in Congress to translate that ire into much higher taxes for higher education institutions.
There’s currently a 1.4% excise tax on the investment income of the endowments of private colleges and universities. Some lawmakers have proposed an increase to 10%. A list of potential revenue raisers circulated by the House Ways and Means Committee suggests increasing it tenfold to 14%.
“Private, public — this is any endowment that I’m in favor of,” Rep. Ralph Norman told NOTUS. “A lot of these universities and colleges are teaching things that I just don’t agree with. They’ve gone rogue.”
Rep. Troy Nehls recently introduced legislation that would match the endowment tax with the corporate tax rate of 21%, citing rising tuition rates — another reason lawmakers see it fit to further tax universities. He’s lobbying to get the provision included in Republicans’ catchall reconciliation package.
“Elite private universities, like Harvard or Columbia, have accumulated and sit on massive endowments, yet pay a tax less than 2% on the investment earnings of their endowments — far lower than what most Americans pay in taxes,” he said in a statement to NOTUS.
Nehls’ proposal joins a number of bills introduced by lawmakers in the past year that propose increasing the tax. In May of last year, then-Sen. JD Vance introduced the “Encampments or Endowments Act” that would have taxed “disqualified” universities at a rate of 50% on the entire sum of their assets.
Universities and colleges are already standing on guard.
“We have long been opposed to the endowment tax because it simply takes resources away from institutions that would otherwise help them deliver on their mission of education, research and public service,” said Liz Clark, the National Association of College and University Business Officers’s vice president for policy and research. “So, any tax on an endowment diminished those goals.”
Universities and interest groups were already in opposition to the Tax Cuts and Jobs Act’s 1.4% tax, arguing that the tax takes away from essential resources used to service students. They’re making the same argument this time around.
For most institutions, endowments are made up primarily of donations. Universities often pool the money and invest it in a vehicle that resembles a mutual fund. A portion of the return on those investments — which, for universities with the largest endowments, can be in the billions — are used to support university operations.
At universities like Harvard and Princeton, this represents the largest source of revenue for the institution. Steven Bloom, a lobbyist at the American Council on Education, said the vast majority of that money goes to financial aid and academic programs.
“They may be used to build labs on campus, or some other important construction project on campus, but they are essential in helping institutions with sizable endowments in operating their institutions, and advancing access, and ultimately lowering the net price that that students would pay to attend an institution,” Bloom told NOTUS.
There are hundreds of private and public universities with endowments. Because of certain carve outs and restrictions (for example, the endowment must be in excess of $500,000 per student at a university with more than 500 students), the tax has only applied to at most 58 institutions since its implementation.
Some lawmakers have proposed legislation that would expand the number of universities the tax would apply to.
In its first year, the tax raised $68 million, short of the $200 million that the Joint Committee on Taxation in 2017 estimated it would raise. The most recent tax data available says the tax has raised $380 million from 56 institutions.
It’s impossible to calculate exactly how much revenue a tax increase would raise, as it’s a function of how profitable the university’s investments are. But the hike to 14% is projected to raise roughly $10 billion dollars over ten years — a drop in the bucket relative to the $5 trillion deficit gap Republicans would need to close if they extend the tax cuts.
Those numbers have some questioning the intent: Is this a pay-for or is this punitive?
“I mean, it’s like a nickel or not even a quarter you’re finding in your couch. It’s not really about revenue raising. Because that much money isn’t very much in the scheme of the federal budget. The problem is that it would be devastating to ultimately, students, not the institutions, but students,” Bloom said, adding that if this is about accountability, there are better ways to go about it.
Ways and Means Chair Jason Smith has floated increasing the tax to members. Rep. Kevin Hern, a Republican on Ways and Means, told NOTUS that the conversation is still in flux.
“We’ve had all kinds of discussions about a lot of different things in Ways and Means. This is a conversation that’s been going on for a while — that’s why all the university presidents come and talk to us regularly. There’s been no decision on what’s going to happen on that front,” he said.
Tax payments are private, so it’s not clear exactly which universities are paying the endowment tax or how much they have paid. NOTUS reached out to a dozen institutions with multibillion-dollar endowments, including some like Harvard, Yale and the Massachusetts Institute of Technology. None responded to multiple requests for comment.
“The tax doesn’t make sense if we, if lawmakers, are committed to investing in education, social mobility and economic advances for our nation,” Clark said.
Disclosures show that higher education institutions have collectively spent millions in recent months lobbying the government against the tax increase and other issues.
“Universities are going to push back,” Norman said. “They’re going to fight that. But why should they be excluded?”
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Violet Jira is a NOTUS reporter and an Allbritton Journalism Institute fellow.