Trump Proposal for Taxing US College Endowments: Who Stands to Suffer and to What Extent
US Congress Advances Proposal to Increase Taxes on Elite Universities
Republicans in the US Congress have voted in favor of a new bill, the One Big Beautiful Bill, which proposes raising taxes on private universities with extensive endowments. The legislation, championed by President Donald Trump, narrowly passed in the House of Representatives last Thursday.
The bill seeks to target so-called "woke" universities and comes amidst previous executive orders and decisions aimed at changing education and immigration in the country, as well as cracking down on pro-Palestine protests on US college campuses in 2023.
In essence, endowments are funds or assets donated to universities to secure their financial sustainability in the future. These typically consist of charitable donations from alumni, other donors, and companies.
The bill under consideration in Congress sets tax rates for universities based on their "student-adjusted endowments." This is calculated by dividing the total endowments by the number of full-time students at the institution. Earnings from investments made from endowments would be taxed if the bill is passed into law.
It should be noted that most colleges have not been taxed on their endowments for centuries. However, this changed during the first term of President Trump. In 2017, the Tax Cuts and Jobs Act introduced a 1.4 percent tax on colleges with per-student endowments of at least $500,000 and at least 500 students who paid tuition.
In the proposed bill, the tax rates are tiered, with a 1.4 percent tax on investment returns of institutions that have a per-student endowment of more than $500,000 but less than $750,000. Institutions with a per-student endowment of more than $2,000,000 would be taxed at 21 percent.
These percentages apply to universities that had at least 500 tuition-paying students in the previous taxable year and where 50 percent of their full-time tuition-paying students are in the US. Universities identified as "qualified religious institutions" are exempt from this tax.
The bill now moves to the Senate, where Republicans hold a majority of seats. The exact timing of the vote is unclear, but President Trump has urged Republican senators to promptly pass the bill.
According to an investigation by The New York Times, at least 58 schools could potentially be affected by these proposed changes. Some of the most affluent universities, such as Harvard, Yale, and Stanford, could fall under the highest tax bracket.
The implications for universities if the bill passes are substantial. For instance, Harvard University's total endowment in the 2024 fiscal year was approximately $53.2bn, with a per-student endowment of $2.16m. If the bill becomes law, it would have to pay a 21 percent tax on this endowment.
However, the bill's future is uncertain. If the Senate passes the tax, it may change the amount of the tax and the criteria for its application during the legislative process. Centrist and conservative Republicans in the Senate have expressed reservations about the bill, and House Speaker Mike Johnson has urged Republican senators to minimize revisions to the bill.
Universities have spoken out against the bill, citing potential increases in student burden and the negative impact on research. Yale President Maurie McInnis described the legislation as a "greater threat" than any other bill in recent memory, stating that it would make college less affordable, reduce revenue available for financial aid, and undermine the country's global leadership in technology.
The Trump administration's critical stance towards higher education institutions likely contributed to the bill's creation. The administration has repeatedly accused universities of failing to address anti-Semitism and for engaging in "illegal and immoral discrimination" through diversity, equality, and inclusion programs. In addition, pro-Palestine protests and encampments occurred on various US campuses in 2023, leading to the freezing of federal funding for several universities, including Columbia and Harvard. These universities are now more reliant on their endowment funds to sustain their research.
[1] The "student-adjusted endowment" refers to the total endowment divided by the number of full-time students at the institution.[2] The 1.4 percent tax on colleges with substantial endowments was introduced in 2017 with the Tax Cuts and Jobs Act.[3] The bill exempts "qualified religious institutions" from the tax.[4] The bill primarily targets universities with substantial endowments, indicating that institutions with smaller endowments below the $2 million threshold might not be subject to the increased rate.
- Critics argue that the One Big Beautiful Bill could negatively impact the education-and-self-development sector, as it targets universities with extensive endowments by imposing higher taxes.
- Some suggest that the proposal to raise taxes on elite universities could have broader implications in the politics sphere, potentially altering the dynamics between the government and education institutions.
- Given the ongoing concerns about immigration, the impact of this bill on international students, who often fund their education through tuition payments, remains a topic of general-news interest and debate.
- The opinion among university presidents and education experts is unified in their concerns that the bill could constrain their institutions' ability to invest in research and develop innovative solutions for various economic challenges.
