College Endowments Come Under Scrutiny Again!

Dear Commons Community,

College and university endowments are coming under scrutiny again as the media focuses on the Republican tax plan which among other things calls for a 1.4 percent tax on college investment earnings.  The New York Times today reviews the issue.  Here is an excerpt:

“For years, lawmakers in Washington have made swelling university endowments a focus of the populist backlash against high tuition and the concentration of rich students in elite universities.

Now they are harnessing that anger with a proposed tax on private colleges and universities that have the wealthiest endowments.

“The House Republican tax plan released last week includes a 1.4 percent tax on the investment income of private colleges and universities with at least 500 students and assets of $100,000 or more per full-time student. It would not apply to public colleges.

The endowments are currently untaxed, as they are considered part of the nonprofit mission of the colleges. The new tax, if it passed, would bring in an estimated $3 billion from 2018 to 2027, one of many new revenue sources Congress is considering to pay for broad tax cuts.

Universities criticized the proposed tax Friday as a blunt instrument that would curb their autonomy and reduce support for poor and moderate-income students.

“There is a difference between directing institutions to make sure they’re using their resources toward their stated mission — missions of education, missions of access — versus directing institutions toward filling gaps in Washington, and this seems to be the latter,” Sean Decatur, president of Kenyon College, said Friday.

Supporters of the proposed tax said it was an acknowledgment that universities increasingly were being run like businesses, with tuition continuing to rise and administrative ranks growing, especially at the wealthiest institutions.

Representative Tom Reed, a New York Republican whose district includes Cornell University, supports the proposed tax, though his main wish is to force schools with large endowments to spend more of them on tuition assistance. Like other proponents of an endowment tax, he noted that private foundations, which also are nonprofits under the tax code, already pay a tax of 1 to 2 percent on their investment income.

“Rather than fight for special treatment, universities should join me in recognizing that young adults are facing a college debt crisis as a result of the uncontrolled escalating costs,” Mr. Reed said in an email. “We should work together to solve this runaway price issue once and for all.”

The tax would affect about 140 colleges and universities, according to a list compiled by The Chronicle of Higher Education.”

This issue will continue to attract attention but I am not sure it will survive the House and Senate bill revision process.


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