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Indebta > News > Republicans in Congress weigh tax increase for top university endowments
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Republicans in Congress weigh tax increase for top university endowments

News Room
Last updated: 2025/03/15 at 12:36 PM
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Republicans in Congress are seeking to extract billions of dollars in taxes from the endowments of top private US universities by raising rates on investment returns amid a broader attack on elite academia.

At least three bills proposed since January aim to raise the tax rate on investment returns to as much as 21 per cent, from 1.4 per cent currently. Two of the bills would also lower the threshold to universities with as little as $200,000 in assets per student, compared with the current level of $500,000. The increase could raise as much as $112bn over the next decade, according to the non-profit Tax Foundation.

Dozens of the country’s richest schools would be subject to the levies if approved, including Harvard, Stanford and Princeton. Universities invest endowment assets and use the gains to fund all manner of operations, including professor salaries, financial aid, student fellowships and campus activities. For some, such as Harvard’s $50bn fund, investment returns are the single-largest source of funding for the school, representing more than a third of revenue.

The proposed tax increases are the latest in a barrage of funding uncertainties and threats to higher education that have kept university officials on edge since US President Trump assumed office again in January. Schools across the country have already seen billions of dollars in federal research grants and other funding become at risk or disappear, sparking suspicion about their motivation and worry about the impact on university finances and affordability.

“It’s just structured to take money from institutions and send it to Washington,” said Steven Bloom, assistant vice-president of government relations for the American Council on Education, which represents universities and colleges. He added that 48 per cent of endowment spending went towards financial aid. “If the aim is to provide financial aid, the tax will undermine it.”

A spokesperson for Republican representative Troy Nehls of Texas, who proposed the bill with a 21 per cent tax rate, said his main goal was to “bring parity between the tax rates paid by individuals and businesses on their investment income and taxes paid by large university endowments”.

One senior official from an association that represents universities said the endowment tax proposals — alongside other funding cuts and recent attacks on higher education by the Trump administration — had sparked “uncertainty and chaos” across campuses.

The Tax Cuts and Jobs Act from Trump’s first term imposed a 1.4 per cent tax on endowments of the country’s richest private universities for the first time, an unusual move given their historic treatment as non-profit institutions. Only 56 institutions had to pay in 2023, totalling $380mn.

This time around, smaller endowments may also fall victim. One of the bills introduced last month by representatives Dave Joyce of Ohio and Nicole Malliotakis of New York aimed to impose capital gains tax on schools with a minimum of $250,000 in endowment assets per student.

“The small schools are just not financially strong enough to withstand more money being taken out of their endowment,” said John Griffith, a director at Hirtle Callaghan & Co and former chief financial officer at Bryn Mawr College. “They have much less financial flexibility.”

While the bills are far from becoming law, universities are panicked because the proposals appear to have support from the White House. In 2023, while senator, JD Vance pushed to raise the tax on rich institutions to 35 per cent — 14 percentage points higher than the steepest proposals from this legislative session.

Although the proposals do not explicitly cite liberal campus ideology or recent protests over the Israel-Hamas war, some university officials have privately suggested those are a driving motivation.

“This is a way for the current administration to punish some larger institutions that they believe have indoctrinated students with a woke ideology,” said one university official. “If you look at the projected revenues that such a tax would actually produce, it’s laughable . . . reducing resources available to institutions is going to erode our higher education system.”

Senator Tom Cotton of Arkansas unveiled the so-called Woke Endowment Security Tax Act on Tuesday, proposing a one-time 6 per cent levy on the country’s 11 wealthiest private schools. “Our elite universities need to know the cost of pushing anti-American and pro-terrorist agendas,” Cotton wrote on X on Tuesday.

The fear of higher taxes alone is already having an impact. Stanford and Cornell universities have cited the increases in instituting hiring freezes.

The levies are working their way through Congress as the White House heaps further pressure on top universities’ funding. Last week, the Trump administration cancelled about $400mn in federal grants and contracts to Columbia University in New York.

The pullback in federal support for Columbia follows on the heels of the National Institutes of Health releasing guidance that it plans to cut federal spending by as much as $4bn a year for research projects across the US — cuts that scientists have warned will be disastrous for research universities.

“The affordability of this university depends on the endowment,” Christopher Eisgruber, the president of Princeton, said during a town hall for staff in February, a recording of which was seen by the Financial Times.

“If the endowment gets taxed, the consequences are having to rein in some of those things that we do.”

Data visualisation by Sam Learner

Read the full article here

News Room March 15, 2025 March 15, 2025
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