Tax policy/IRS

U.S. provides some clarity about the tax on endowments

New IRS guidelines further define which institutions are subject to the tax and what should be included as taxable "investment income" (surprise: dorm rental income).

Some tax-bill provisions opposed by higher ed dropped in conference negotiations

Reports indicate congressional negotiators have dropped repeal of tax-exempt tuition waivers for graduate students and other provisions affecting higher ed from final tax-reform bill.

Senate tax bill has some but not all provisions that alarmed higher education leaders in House bill

Tax on wealthy private college endowments is included. Deductions for state and local taxes -- viewed as essential by public higher ed -- would be killed. Some other provisions of House bill opposed by colleges are not included.

Grad students and policy experts say taxing graduate students' tuition waivers would spell disaster

Graduate students and higher education experts warn GOP plan to tax tuition waivers would be disastrous to both students’ finances and institutions’ teaching and research missions.

Excise taxes on colleges spark criticism but may signal a tough future for higher ed

Republican tax plan would cut off key source of borrowing and impose new taxes on wealthy institutions. Some see historic shift in view of elite universities from a public good worthy of sheltering from taxes to a source of funds for government.

GOP tax overhaul would eliminate tax breaks used by colleges and students

Republican tax reform plan would tax large endowments and limit or kill key deductions, including one for student loan interest and another for graduate students.

Instead of lobbying against an endowment tax, colleges should focus on greater service to the public good (opinion)

Over the next several months, about 40 private, nonprofit colleges and universities -- those with more than 500 students and $500,000 in endowment per full-time student -- will start writing checks to the IRS. The exact amount due will depend on the size of each institution’s endowment, with the bill for Harvard University estimated to be as high as $50 million.

Colleges and universities subject to the new tax, and others that worry about the precedent of taxing institutions of higher education or expect they also might be subject to the tax, have lobbied hard to remove this provision of the Tax Cuts and Jobs Act. Even after it was passed in 2017, efforts to amend it have continued.

Here’s a better strategy: carefully consider congressional motivation and address the underlying concerns of policy makers. Waiting for new leaders in Congress and expecting a reversal in thinking may not pay off. The tax bill passed along party lines when the U.S. House of Representatives and Senate were controlled by the Republicans, so their concerns about elite higher education are noteworthy. The majority party in the House has changed and, with an election in 2020, we could see further shifts, but legislators in both parties have raised issues about higher education.

For example, many Republicans who supported the tax bill in 2017 continue to be concerned that colleges do not adequately protect free speech, including representation of conservative points of view in the classroom and from speakers invited to campus. Most college leaders are committed to free speech and diversity of points of view, regarding them as important to both learning and the pursuit of new knowledge. While most institutions do, in fact, welcome a variety of ideological points of view, I suspect there is also a significant political tilt in the views represented.

A stronger effort to present ideological diversity on our campuses would go further to win back support from the right. Doing so would improve learning on campus, since wrestling with different points of view encourages students to think more critically about issues. Colleges also clearly need to protect speakers from being disrupted and prevented from speaking, even as such incidents have been few compared to the number of speakers invited to campuses across the country -- and have rarely occurred at the institutions slated to pay the endowment tax.

Another vital move to turn the tide: do more for veterans. That could include recruiting a greater number of veterans as students and hiring more veterans as staff and faculty members. Support programs that benefit veterans would contribute to the diversity of experience and points of view on campuses, including among the faculty. Interestingly, student veteran groups have been effective at lobbying Congress on policies that affect them. If student veterans had a greater presence at the colleges and universities subjected to the endowment tax, and felt that those institutions were going all out to assist student veterans and hire returning ones, could they have helped eliminate this provision from the tax bill?

Across the political spectrum, families are also worried about the cost of higher education. While all of the institutions with large endowments use significant resources for need-based financial aid, touting low net prices and no or low loan burdens for low- and middle-income families hasn’t allayed families’ concerns. Significant financial aid reduces the prices that low- and middle-income families at these colleges and universities are asked to pay -- in some cases coming close to zero -- but these institutions don’t recruit that many low- and truly middle-income students. Too few students are experiencing the low net prices. Rather than continuing to talk about the low net prices, colleges and universities would be better off making a big push to admit and enroll more such students.

Institutions may regard this move as difficult because of the financial cost -- and because taking more low- and middle-income students means taking fewer students with other desired attributes. Such a move would, in fact, come at a cost, in terms of increased need-based financial aid. But failure to win back the public trust will also prove costly in the form of a continued endowment tax that may continue to rise. Colleges and universities may also face reduced access to other forms of public financial support. And these 40 institutions in particular have adequate resources to increase enrollments without significantly reducing the quality of the education offered. Enrolling more low- and middle-income students need not be a zero-sum decision.

The strategy of relying on lobbying to undo the harm of the endowment tax bill was based on the assumptions that the public was misinformed and that the problem was mostly a public relations issue. That may be true in part. But the best approach that these institutions could take to win back support is to clearly demonstrate, through a set of actions, that they are listening and committed to doing a better job of serving the public good -- by bringing on more intellectual diversity, more low- and middle-income students, and more veterans.

Catharine Bond Hill is managing director of Ithaka S+R and president emerita of Vassar College.

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Experts still digging into new taxes on higher education

Business officers are becoming "very good friends" with the lawyers in their institutions as they wrestle with paying taxes in an uncertain environment.

Alaska governor proposes 41 percent cut to higher ed

Alaska's governor proposes a 41 percent cut, the largest in a century, to the public university system. State's only medical education would be eliminated.

The tax on college endowment unconstitutionally targets institutions (opinion)

In December, Republicans in the U.S. Congress passed a tax bill aimed at helping the very, very rich. Meanwhile, the rest of us will be paying for it the rest of our lives, as it adds trillions to the national debt. But the Republicans excluded one group of rich institutions from the gift it gave to big corporations: elite colleges and universities.

In fact, the tax legislation includes a big bill for the wealthiest higher education institutions: a 1.4 percent tax on endowment income for any college with more than 500 students and an endowment worth over $500,000 per full-time student. For about 30 colleges, the Republicans are the Grinch who taxed Christmas.

It might be tempting for some of us not to cry any tears for overprivileged colleges, run by wealthy administrators to serve the children of the affluent, which waste vast sums of money to prove how much better they are than everybody else. But doing so would miss a vital point: the endowment tax is an attack on academic freedom, and it is an attack on all colleges and universities. This is a warning shot across the bow of higher education, done for explicit ideological reasons to try to pressure institutions to silence leftists and lift up conservatives.

Although the endowment tax will raise a few hundred million dollars a year to offset the massive tax cut for the wealthy, both supporters and opponents of the tax acknowledge that its true purpose is to send a political message to American colleges and universities deemed hostile to Republican interests.

Columnist George Will argued that “the Republicans, without public deliberations, and without offering reasons, would arbitrarily make university endowments uniquely subject to a tax not applied to similar entities.” Neal McCluskey of the Cato Institute said it “amounts to little more than a politicized, ‘Take that, Harvard!’”

Harvard Law professors Jack Goldsmith and Adrian Vermeule blamed elite universities themselves for the endowment tax, citing “the public contempt of so many university academics for those who fund their subsidies.” According to Goldsmith and Vermeule, “Conservative politicians and their constituents hear, on the one hand, that government owes universities a continuance of largesse and, on the other, that conservatives are ignorant, unworthy or corrupt. This sounds suspiciously like special pleading by an intellectual elite that wants to indulge in social criticism at the expense of the criticized, in both figurative and literal senses.”

Yes, it sounds like educators want the government to fund education and yet they want to have the freedom to criticize the government. Since when is free speech considered “special pleading”? Since when is supporting the ideology of the government in power considered part of a professor’s job in a free society?

The few Republican politicians who have commented on the endowment tax have tried to disguise the obvious ideological motives. Tom Reed, a Republican congressman from New York, claimed that the tax would be aimed at pushing colleges to address the “college debt crisis.” Reed did propose to tax only colleges that fail to spend a minimum amount of endowment dollars on financial aid. But the endowment tax that passed has no such provisions, and taking away endowment money that’s used for financial aid has the exact opposite effect.

Kevin Brady, a Republican congressman from Texas and the lead sponsor of the Republican tax bill, claimed that the endowment tax “ensures that private endowments are placed on equal footing with private foundations.” Private foundations, which disperse money to charities, are required to pay a tax. But colleges are the only kind of charity being targeted by Congress. Just as Democrats could not target churches for leaning conservative and demand that they should pay extra taxes, right-wing Republicans cannot target universities based on ideological beliefs.

The political motives behind the bill were also revealed by how hard Republicans worked to exempt conservative colleges from the tax. Passage of the Republican tax bill was delayed by a day as part of a failed attempt to exempt a Christian college in Senator Mitch McConnell’s Kentucky from the endowment tax. Only four Senate Republicans voted against a special exemption for Hillsdale College, the college beloved by conservatives for its right-wing political correctness. But because that special exemption didn’t pass, Republicans protected Hillsdale by raising the threshold for taxes to an endowment of $500,000 per student. That indicates a clear political motive in passing this special tax and a desire to punish colleges perceived (incorrectly) as being too liberal.

In short, it’s clear that the point of the endowment tax is not to tax wealthy universities. It’s to send a warning shot at all colleges and universities to restrain academic freedom or risk further economic assaults on higher education.

Punching Progressives in the Mouth

Richard Vedder and Justin Strehle at Minding the Campus attribute the endowment tax to “growing hostility by Republican lawmakers angered over the large political donations and public criticism that academics have made attempting to oust them from office. Lawmakers are growing tired of feeding the mouths that bite them.”

Vedder and Strehle praise the endowment tax because it “does send a warning to politically relatively clueless college administrators that their special privileges as institutions should not be taken for granted, and, indeed, are under intense scrutiny.”

But the First Amendment does not allow Congress to punish people or institutions as a way to send politically motivated warnings aimed at silencing criticism. And that is what makes it unconstitutional. Congress cannot impose “ideology taxes” on particular types of corporations they believe are antithetical to the political interests of the party in power.

What’s more, tax-avoidance schemes are notorious among the wealthy, and there’s no reason to think rich universities won’t adopt them if taxes become onerous enough. In fact, there might be an easy way every college could refuse to pay the endowment tax. They could perhaps avoid it by simply offering online courses and declaring that anyone who takes free online classes is an enrolled “student.” Students don’t need to be eligible for a degree and don’t even need to pay anything, since earlier provisions about “tuition-paying” students were ruled out of order by the Senate parliamentarian. Harvard’s online Introduction to Computer Science, with about 350,000 registrants from around the world, should be more than enough students to exempt Harvard from a $43 million annual tax. That would be a very real act of resistance if universities are courageous enough to risk retaliation from Republican politicians by refusing to pay a politically motivated tax.

But will colleges challenge the constitutionality of the new endowment tax as retaliation for the expressions of controversial ideas by their employees? The First Amendment protects freedom of speech and academic freedom, so a law by Congress that punishes colleges hated by the party in power is deeply suspect.

The Constitution also specifically bans bills of attainder, when Congress targets an individual or a group for punishment. If Congress passed a law imposing a 1.4 percent tax specifically on Warren Buffett or Planned Parenthood, it would be unconstitutional. Attacking a small group of elite colleges for their perceived political offense of being too liberal should also be unconstitutional. Although courts have interpreted the bills of attainder provision narrowly, it adds to the argument of a constitutional prohibition on congressional retaliation against their ideological enemies.

No, rich colleges won’t be bankrupted by this law. That’s not the point. The point is the principle. If Congress passed a law imposing a 1.4 percent excise tax on college professors making over $100,000 a year, it might not bankrupt anyone. But it would still be wrong, and unconstitutional.

David Horowitz, who long ago pushed for the Academic Bill of Rights, has written Big Agenda: President Trump's Plan to Save America, which proposes massive repression of liberal institutions as a tool of political power. According to Horowitz, Republicans cannot “continue to allow the left to use the trillion-dollar structures of the university system as a political base to destroy the society that created them.” He argues that Republican politicians must target universities for repression by using the power of money: “Republicans control the purse strings that can be used to restrain the progressive juggernaut. Why should half the country fund institutions that regard them as racists, sexists, homophobes, Islamophobes and xenophobes -- in a word, ‘deplorables’?”

Horowitz believes that conservatives “must begin every confrontation by punching progressives in the mouth.” The endowment tax is the first punch. More taxes, and other efforts to silence criticism of President Trump and his Republican supporters in Congress, will follow.

If the Republicans are allowed to target universities (even wealthy ones) for political retaliation, the repression will only escalate. The endowment tax is an unconstitutional attack on higher education by powerful conservatives who see universities as an enemy to be destroyed. And that means we are all vulnerable.

John K. Wilson is the author of eight books, including President Trump Unveiled: Exposing the Bigoted Billionaire (OR Books).

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