WASHINGTON (AP) — President Donald Trump’s feud with America’s elite universities is lending momentum to Republicans on Capitol Hill who want to increase a tax on wealthy college endowments by tenfold or more.
House Republicans already were considering a hike in the tax on college endowments’ earnings from 1.4% to 14% as part of Trump’s tax bill. As the president raises the stakes in his fight with Harvard, Columbia and other Ivy League schools, lawmakers are floating raising the rate as high as 21% in line with the corporate tax rate. It appears no decisions have been made.
In a letter blocking Harvard from new funding on Monday, the Trump administration drew attention to the school’s “largely tax-free” $53 billion endowment, noting it’s bigger than some nations’ economies. Trump previously said he wants to see Harvard stripped of its tax-exempt status as he presses for reforms at colleges he accuses of “indoctrinating” students with “radical left” ideas.
Similar rhetoric has been echoed by Republican lawmakers who question why wealthy colleges get tax breaks that businesses don’t.
In a letter to Brown University last month, Rep. Troy Nehls of Texas, who has proposed legislation with the higher rate, said lawmakers are concerned about the priorities of universities that operate in a “largely tax-free” world. He questioned whether their endowments contribute to the public good.
Republicans appear to be chipping away at the long-held notion that colleges provide the kind of public benefit that deserves to be protected from heavy taxation. And it’s happening just as the House looks to cut or offset $1.5 trillion in spending as part of the president’s sweeping tax bill.
Endowment taxes were introduced in Trump’s first administration
Colleges weren’t taxed on their investment gains until Trump’s 2017 tax package, which applied a 1.4% levy to schools that enroll at least 500 students and have $500,000 per full-time student in the bank.
A proposal floated by the House Ways and Means Committee in January called for a 14% endowment tax. Now lawmakers are looking at a 21% tax, among various options. As a senator, Vice President J.D. Vance proposed going further, to 35%.
In 2023, the current tax generated $380 million from 56 colleges.
Raising the tax to 14% would generate $10 billion for the federal government over 10 years, according to budget documents. On its own, it would have little impact on the House’s goals for slashing government spending.
The momentum for an increase reflects a broader attack on higher education, said Steven Bloom, an assistant vice president of the American Council on Education, which represents the presidents of hundreds of colleges.
“It’s not a lot of money, so that can’t be the motivating factor,” Bloom said.
Multi-billion dollar endowments draw new scrutiny
Colleges see their endowments as stability for the future. The wealthiest ones run massive investment portfolios, and they usually draw about 5% of their returns to cover scholarships and other operating costs.
Critics say colleges have been allowed to amass huge, tax-free returns while charging students as much as $95,000 a year for tuition and fees. They point to Harvard, Yale and others with tens of billions stored away. In total, roughly 50 colleges have endowments worth more than $1 billion, while the vast majority are much smaller.
The tax proposals heighten financial uncertainty for colleges, including some that already are drawing deeper into endowment reserves to make up for federal funding cuts or grappling with budget gaps amid enrollment decreases.
At Davidson College, the most modest proposal would add $11 million a year to the school’s tax bill, which was about $1 million last year, President Douglas Hicks said in an interview.
“That amount of money would be astronomical for our budget,” he said.
Davidson is among a small group of colleges that don’t consider students’ income in admissions and agree to cover their full financial need. Hicks said the proposed tax hikes would take away the equivalent of full scholarships for up to 200 students.
“If leaders are trying to reform higher education, there are much better incentives,” Hicks said.
Middlebury College in Vermont, a campus of about 3,000 students, cited the potential tax increase as a factor contributing to recent financial uncertainty. The school faces a budget deficit amid a dip in graduate school enrollment, but it’s opting not to pull more from its endowment over concerns of a tax hike.
“Endowment tax increases that are currently under consideration could raise our tax bill from $1 million to $12 million,” university leaders wrote in an April update.
___
The Associated Press’ education coverage receives financial support from multiple private foundations. AP is solely responsible for all content. Find AP’s standards for working with philanthropies, a list of supporters and funded coverage areas at AP.org.
