Chronicle of Higher Education, Plans to Hike the College-Endowment Tax Are Taking Shape. They’re Not What You’d Expect.:
Amid the deluge of executive orders, budget slashes, and confirmation hearings that has typified the Trump administration’s first 100 days, there’s one pending legislative matter that some college leaders are eyeing with particular anxiety: a possible endowment-tax expansion.
The current tax, enacted by Congress in 2018, skims from the annual investment income of the endowments of a thin and uneven layer of the wealthiest colleges — 56 institutions in 2023, according to the Internal Revenue Service. Broad tax cuts pushed through by President Trump in 2017 are due to sunset this year, and the White House and Republican-controlled Congress plan to extend them. To do that, they need to find ways to pay for the cuts, and expanding the tax on colleges’ investment earnings is likely to be part of their solution — it was included on a list of policy possibilities compiled by Republican members of the House Budget Committee and leaked earlier this year.
Expanding the tax would cost the colleges it applies to more money — possibly a lot more. Legislation has been introduced that would tax colleges’ investment income by 35 percent. The number of colleges it applies to could also grow. College leaders and many experts believe the tax is harmful, cutting into institutions’ ability to provide financial aid and keep costs down, and expanding it would only increase the damage. What is the tax, how might it change, and what might be the consequences? …
Lawmakers could adjust the endowment tax in several ways and degrees. The simplest might be to increase the rate at which colleges’ investment income is taxed. The list of Republican policy possibilities leaked earlier this year noted that boosting the tax rate to 14 percent, a tenfold increase over the current rate, would bring in an additional $10 billion in revenue over 10 years. Joyce’s bill reintroduced last year, proposes raising the rate to 10 percent and with a subsequent increase to 20 percent for colleges that raise their net price of attendance above the rate of inflation over three years. Some lawmakers would like the rate to go even higher, says Brian Flahaven, vice president for strategic partnerships at the Council for Advancement and Support of Education, known as CASE: “I have heard some scuttlebutt around, ‘Maybe they should be taxed at 21 percent,’ which is the corporate tax rate.” Vice President JD Vance introduced a bill when he was in the Senate in 2023 that would raise the rate for institutions with endowments of $10 billion or more to 35 percent.
Lawmakers could also expand the tax by altering the formula that determines which colleges are subject to it. Joyce’s bill, for example, would lower the threshold for endowment-per-FTE-student calculations from $500,000 per student to $250,000, which would rope a much larger set of institutions into the tax. For example, Furman University, a private institution in Greenville, S.C., has an endowment of about $850 million and enrolled 2,510 FTE students in the fall of 2024. With an endowment-per-FTE number of about $339,000, it is not currently subject to the tax but could be if a proposal like Joyce’s went through.
The leaked policy document also raised the possibility of excluding international students from the endowment-per-FTE calculation, a provision it projected would bring in an additional $275 million in tax revenues over 10 years. Flahaven believes that lawmakers are considering the tactic to encourage colleges to enroll more American citizens. The more American students a college has, “the chance that you’re within the threshold of the endowment tax goes down,” he says, “because obviously your denominator goes up.” …
By the time the final bill appears, experts say, it will probably be missing the most extreme proposals. While many House Republicans are eager to hike the endowment tax, the Senate is likely to take a more circumspect view of the issue — Bloom, of ACE, doubts that Republican senators have “the appetite to make significant changes to the endowment tax” and will push out most of the drastic shifts. For example, the House version of the 2017 legislation set the endowment-per-FTE threshold at $100,000, but it was increased fivefold in the Senate before the law was sent to President Trump to sign. As Flahaven puts it, “they always say the Senate is the saucer where everything cools.”
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