House Republicans have slashed the number of colleges they are targeting for a new tax on endowment income.
The GOP majority on the Ways and Means Committee voted Monday night to modify a tax bill that includes several provisions affecting higher education. Among them is a proposal that makes college presidents blanch: an excise tax on endowment income for certain private colleges.
Under the first version of the bill, made public last week, private colleges would have been subject to a 1.4 percent tax on net investment income if they had 500 or more students and an endowment of at least $100,000 per full-time student. A Chronicle of Higher Education analysis found that about 140 schools would have been affected. The American Council on Education estimated the number affected as 155.
Now the total of targeted schools has been cut by more than half. The amendment from Ways and Means Chairman Kevin Brady (R-Tex.), approved on a party-line vote, would raise the wealth threshold for colleges subject to the tax to an endowment of $250,000 or more per full-time student. That would leave roughly 60 to 70 schools potentially subject to the tax, from Ivy League universities such as Princeton and Harvard to smaller schools such as Oberlin College and College of the Ozarks.
“This ensures that private endowments are placed on equal footing with private foundations,” Brady said in a statement. The proposal is part of a sweeping bill to cut corporate taxes and make other changes that Brady said would deliver “tax relief to millions of families” and help “our workers and job creators compete and win here at home and around the world.”
Democrats have criticized the bill as a giveaway to corporations and the wealthiest individual taxpayers.
Higher education groups are fiercely opposed to the proposed tax on college investment income.
“We’re happy that they continue to trim the list, but we continue to oppose any new excise tax on our sector at all,” Karin Johns, director of tax policy at the National Association of Independent Colleges and Universities said. “It feels like an attack on private colleges when endowments are just our funding stream.”
College endowments have been an off-and-on topic of debate on Capitol Hill.
Last year congressional Republicans launched an inquiry into whether the wealthiest universities were using their multibillion dollar endowments to hold the reins on tuition increases. They asked 56 schools, each with endowments exceeding $1 billion, for information about the use of that money.
At about the same time, Rep. Tom Reed (R-N.Y.) introduced a bill to require private colleges with endowments above $1 billion to set aside up to 25 percent of their investment earnings toward financial aid, or risk losing tax-exempt status.
The pending excise tax proposal, however, makes no mention of college affordability.
“This is a way for the federal government to make money off of our private college endowments,” Johns said. “The money is just going back to the government. There is nothing in the provision that redirects the money or taxes the endowment with a requirement that that amount be used for student aid.”
Ted Mitchell, president of the American Council on Education, which represents college and university presidents, said the proposal would drain money that institutions count on for student aid, faculty salaries and scientific research. “The only beneficiary of this plan – its only impact – will be more revenue for the U.S. Treasury,” Mitchell said. He said Congress should scrap the proposal entirely.
Mark Schneider, vice president and institute fellow at the American Institutes for Research, said the new threshold of the proposed tax is a step in the right direction because it focuses on the wealthiest schools, like Harvard and Yale universities that have more than $20 billion in endowments. In the past Schneider has supported an excise tax on private colleges with more than $500 million in endowment funds.
“It’s the disproportionate concentration of wealth at the very top that needs to be addressed,” he said. “I still believe that the new funds should be redirected to supporting efforts in community colleges to improve student success rather than being absorbed into the general budget.”