Illustration by The Chronicle: Getty
Dear Commons Community,
Phillip Levine, a professor of economics at Wellesley College, gives an analysis of the new federal budget bill on college endowments in this morning’s edition of The Chronicle of Higher Education. Here is an excerpt.
“I’ve been tracking the estimated impact of various endowment-tax proposals at leading colleges and universities for the past six months, and the scorecard is now complete. The damage isn’t as severe as it could have been, but there will be pain. Mostly what we observed was the triumph of politics.
Highly endowed private colleges have been in the crosshairs for the past decade. A tax on their investment returns was first instituted in 2017 as part of the Tax Cuts and Jobs Act. That law imposed a tax of 1.4 percent on returns for institutions with more than 500 tuition-paying students and a per-capita endowment of greater than $500,000.
In one of my earlier analyses for The Chronicle, I estimated the annual cost that would be imposed on selected highly endowed colleges and universities under three different sets of proposals: an initial House proposal from January, an initial House-passed bill from April, and an initial Senate proposal from June. In the table below, is a sample of those estimates.
Provisions have been added and removed in a haphazard fashion that generated swings in institutional tax liabilities of up to hundreds of millions of dollars. There were likely champagne corks flying and tears shed on affected campuses across the country with each shift.
The modifications made along the way include wildly fluctuating tax rates, categories of institutions being excluded and reinserted, and anti-immigrant provisions added and removed. Proposals expanded the current 1.4-percent tax rate to a tiered system with a top rate of 21 percent and then revised downward to a top rate of 8 percent. Religious institutions were excluded and then, after the Senate parliamentarian weighed in, re-included. Colleges with under 3,000 students (including Wellesley College, where I teach) were excluded at the last minute. Endowments per student that are currently based on a count of all students were ordered to be based on domestic students only, and then it changed back to all students. Yes, your head should be spinning trying to make sense of it all.
Once all is said and done, comparing current policy with the newly enacted legislation shows that a handful of institutions will pay a lot more in taxes and others that currently pay the tax will now be exempt. The impact of this bill is highlighted in the final column of the table below. Harvard University was the hardest-hit institution. Their current $56-million estimated tax payment jumped to $849 million under the April House bill and then back down to $324 million in the final bill.
These institutions are among the best in the world. They provide a high-quality education to their students, who go on to become society’s leaders. They generate advances in science and technology that improve our economy and our health. The financial hit they face will impose real costs on the people who work at these colleges, the students who attend them, the communities they are in, and our country as a whole. Does scoring a few political points warrant the infliction of such pain and the squandering of such opportunity for our nation? Evidently, this administration thinks so.
Tony
This entry is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International license.
