Endowment Tax Fight Not Over Yet

Although prospects look dim this year, private colleges target future repeal.

April 23, 2018
 

The fight over the Republican tax bill passed last December is far in the rearview of most colleges and student groups.

But a group of private colleges still has its sights set on overturning a new endowment tax passed as part of that bill over the objections of higher ed advocates.

The endowment tax was one of a number of punitive measures included in the legislation that either sought to generate new revenue from higher ed institutions or strip tax benefits for students and student loan borrowers.

After intense lobbying from college groups and student organizations, almost all of those provisions were dropped from the final legislation. The endowment tax remained, however. And although the scope of the provision was seriously narrowed between the introduction of the bill and its final passage -- the number of affected institutions dropped from 250 to just 28 -- higher ed organizations see the tax as bad policy and precedent setting.

They’ve found a handful of lawmakers so far willing to take up their cause. Representative Bradley Byrne, an Alabama Republican, and Representative John Delaney, a Maryland Democrat, last month introduced legislation to repeal the endowment tax, which imposes a 1.4 percent excise tax on all investment income of institutions with $500,000 in endowment assets per full-time student.

Last week Byrne and Delaney circulated a letter to House colleagues asking additional members to sign on to the bill.

“We lead the world in higher education and it gives us an incredible advantage in today’s high-tech, high-skill global economy,” they wrote. “Colleges and universities rely on endowments to provide essential funding for financial aid, support difference-making research and teaching, and effectively manage complex short-term and long-term costs.”

A group of 45 private colleges told congressional leaders in a separate letter last month that the tax could hurt their ability to provide aid to low-income students as well as support for research and innovation. And because the provision was not written to adjust for inflation, it will likely affect more colleges down the line.

Byrne and Delaney officially added three new co-sponsors to their bill last week: Representative Lamar Smith, a Texas Republican; Representative David Cicilline, a Rhode Island Democrat; and Representative Michael Capuano, a Massachusetts Democrat.

A number of higher ed associations have also signed on to back the bill, including the American Council on Education, the National Association of Independent Colleges and Universities, and the Association of American Universities.

“The higher education community, even institutions not at all affected by the endowment tax, were strongly opposed to it, and it should come as no surprise that we are still opposed to it and will look for ways to amend or eliminate it,” said Terry Hartle, senior vice president for government relations and public affairs at the American Council on Education.

Hartle said college groups have heard some members of Congress are having second thoughts about the wisdom of the legislation.

Higher ed leaders will continue to push for a change, he said, although how that happens remains an open question.

A bill like the proposed tax repeal typically requires some kind of larger legislative vehicle to advance. And the likelihood Congress advances any large legislative items this year -- much less a higher education bill -- looks slim.

Karin Johns, director of tax policy at National Association of Independent Colleges and Universities, said the group will look for any legislative opportunities to advance the bill, whether that means a large tax or education bill or spending legislation.

She said the tax remains a priority even for colleges not currently affected by the criteria included in the tax law. A number of private colleges see themselves on the threshold of being subject to the tax. For that reason, about 50 institutions remain active on the issue, Johns said.

“We continue to have the position that we’ve always had. It doesn’t matter how many or how few colleges are affected by this. It’s terrible policy,” she said.

Serious uncertainty over how the provision will work remains for the affected institutions. Higher ed groups complained last year that language in the tax law remains unclear about what kind of revenue would actually be subject to the tax. And the Department of Treasury has not issued any guidance for institutions.

NAICU has asked member colleges to continue to raise the issue with their representatives in Congress -- especially if they sit on key committees.

“We’re going to keep up this conversation with both Republicans and Democrats,” Johns said.

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