Many of America’s elite colleges sit on massive pots of money, some worth billions of dollars. These endowments have grown significantly in recent years, the result of philanthropy and savvy investment techniques—and all the while they’re completely untaxed.
That’s poised to change, though, if GOP lawmakers succeed in enacting their tax-overhaul bill, which is now inching closer to becoming law: The bill stipulates that certain higher-education institutions would, for the first time ever, have to pay a tax on the income from those assets. The proposal comes at a time when lots of schools are struggling financially—including some that on paper might look like they’re swimming in cash.
As it stands, the provision would levy a 1.4 percent tax on the investment income that wealthy colleges—the 60 or so institutions whose endowments are worth at least $250,000 per full-time student—make on those assets. Experts estimate that the tax would generate between $250 million and $300 million in revenue annually, which could range from as little as a few hundred-thousand dollars from small liberal-arts schools such as DePauw University to $43 million from Harvard, according to university spokespeople. That might not seem like a lot, but college officials indicate it’d significantly detract from their ability to fund operations and student aid. Both the House version of the bill, which passed the chamber earlier this month, and the Senate’s version, which is expected to receive a full vote this week, seek the same tax on endowments. If the legislation passes Congress, it would go into effect almost immediately, requiring colleges and universities to start paying up in 2018.