Wealthy U.S. colleges scored a win on Monday with the release of Senate Republicans’ tax bill, which would institute a lower tax increase on endowments than what GOP House members have backed.
Private universities with at least 500 students that have endowments of $2 million per pupil or more would pay an excise tax of 8% under the new bill released by the Senate Committee on Finance. The levy would be placed on net-investment income earned by the endowments. That’s much lower than the 21% rate that was included in the House proposal, which passed the chamber in May.
The endowment tax would raise revenue to offset President Donald Trump’s tax cuts and it would punish universities that are “woke,” in the words of the House tax-writing committee. The White House has frozen federal funding to a number of schools including the Ivy League’s Harvard, Princeton and Columbia.
Under the new proposal, institutions with endowments of $750,000 to $1,999,999 per student would face a tax of just 4%. Under the House plan, colleges with endowments over $1.25 million per student but below $2 million would pay 14%. Colleges have warned that the House plan would be extremely costly for the schools and take away from financial aid provided to students.
Religious schools would be exempt from the tax in both the House and Senate proposals. The current levy of 1.4% on the richest colleges was instituted as part of the 2017 Trump tax cuts.
Karin Johns, director of tax policy for the National Association of Independent Colleges and Universities, said the tax should be eliminated and not expanded.
“The tax remains purely punitive, unfairly impacts one sector of higher education, disincentivizes charitable giving, and siphons funds to the federal government used to support students and their families,” she said in an emailed statement.
