In 1796, George Washington made a gift valued at $20,000 to a struggling classical school called Liberty Hall Academy. The donation, which formed the largest component of Liberty Hall’s meager endowment, not only permitted the school to keep its doors open but also promised a permanent revenue stream that would benefit generations of students.
In recognition of the gift, Liberty Hall Academy became Washington College, which subsequently became Washington and Lee University in 1870.
More than 220 years after Washington made his donation, it remains part of Washington and Lee’s endowment and directly supports the education of every student at the university.
George Washington, who consistently emphasized the importance of education to democracy, would surely be disappointed to learn that Congress has enacted a tax on the charitable contribution he intended to help educate young people for the public good.
The Tax Cuts and Jobs Act, signed into law on Dec. 22, 2017, imposes a 1.4 percent tax on the endowment earnings of about 30 private colleges and universities, including Washington and Lee, that have worked diligently to marshal the resources to provide students with an education of the highest quality.
This unprecedented tax reflects a misunderstanding of how a school such as Washington and Lee uses its endowment.
At Washington and Lee, our endowment underwrites 40 percent of the annual operating budget and substantially subsidizes the education of every student.
Moreover, half of our endowment is expressly dedicated to providing scholarships and grants, on which we will spend $52.7 million this year. The W&L Promise guarantees that students from families with annual incomes below $75,000 pay no tuition, and most also receive support for room and board. Beginning this fall, the Promise will apply to all families making less than $100,000.
No undergraduates who receive financial aid from the university are required to take out loans.
Our Johnson Scholar Program, endowed by an alumnus of the university, not only funds full scholarships for 10 percent of each class but also provides grants to support summer experiences for more than 40 students annually.
Enrolling more high-achieving, low-income students is one of our priorities.
We have doubled the number of students eligible for Pell Grants in our entering class over the last two years, by increasing the financial aid budget for first-year students more than 20 percent.
And now, as a member of the American Talent Initiative, we are among the nation’s colleges and universities with the highest graduation rates that have expressly committed to aggressive efforts to identify, recruit and enroll more low- and moderate-income students. As we make progress in this effort, we will sustain our commitment to meeting 100 percent of the demonstrated financial need of every Washington and Lee family.
Our endowment makes possible all of this financial support for students, and it also funds signature academic programs.
The new tax is estimated to obligate us to pay the government about $1 million this year.
Those dollars — the equivalent of 20 full-tuition scholarships, 150 student internships, or nine faculty positions — will not be available to spend on financial aid and educational programs.
The impact will grow each year the tax remains in place.
George Will assessed the situation correctly in his column on the endowment tax: “Great universities are great because philanthropic generations have borne the cost of sustaining private institutions that seed the nation with excellence. Donors have done this in the expectation that earnings accruing from their investments will be devoted solely to educational purposes, in perpetuity.”
The alumni and friends of Washington and Lee have been extraordinarily generous in their support of the university because they, like George Washington, want to benefit society by making enduring contributions to educational excellence. Taxing our endowment erodes the power of those contributions, which hurts students and families.
Our current political representatives would do well to heed the wise words of our nation’s first president, when he explained his decision to make an endowed gift to Liberty Hall: “There is nothing which can better deserve our patronage than the promotion of science and literature. Knowledge in every country is the surest basis of public happiness.”
William C. Dudley is the 27th president of Washington and Lee University. The private liberal arts university in Lexington, Va., is the country’s ninth oldest institution of higher education.