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Many wealthy private universities across the nation have voiced strong opposition to a tax on their endowments. Leadership at Harvard University are pushing Congress to reduce the tax on their income from private donors.
Leaders of similar universities with large endowments are in support of a reduction or elimination of the tax in its entirety.
In an email obtained by Inside Higher Ed, Suzanne Day, Harvard’s senior executive director of federal relations, urged others to reach out to Democrats in Congress to reduce the endowment tax, a 2017 tax change passed by Republicans that imposes an excise tax on wealthy endowments, through the budget-reconciliation process this fiscal year.
Colleges and universities subjected to the controversial tax want it eliminated. The 1.4 percent tax on net investment income applies to all colleges with endowments larger than $500,000 in assets per student. Nearly 100 colleges are currently subject to the tax.
Colleges subject to the tax argue that it limits their capacity to provide financial aid to low-income students. According to 2021 data from the National Association of College and University Business Officers, nearly half of all endowment spending from 720 universities that participated in the study is used to fund student financial aid.
Although Harvard is in support of a total elimination of the tax, the email from Day expressed support for a change to the tax that would allow colleges subjected to the endowment tax to be taxed at a lower rate if the college uses a substantial portion of tax-subjected income to provide grants to low-income students, as most do. This measure was included in the Build Back Better reconciliation bill, which died in the Senate after being passed by the House of Representatives in November. Senate Democrats have been negotiating to revive a different version of the reconciliation bill—and Harvard is hoping to get the endowment tax reform on the agenda of Senate Democrats.
“I write to urge you to engage with Democratic Senators and allies to press for action on this in the pending FY22 reconciliation bill. We believe this is one of our best chances for improvement in this policy,” Day said in the email. “This would transform the existing provision from a politically motivated, damaging tax on charitable resources to a family-centered policy making college more affordable without debt. We believe this approach puts the reform of the endowment tax clearly within the framework for the new reconciliation bill that is being negotiated.”
Harvard did not respond when approached for comment on the email. Other elite universities subject to the tax were asked by Inside Higher Ed whether they were making similar advocacy efforts. Only the Massachusetts Institute of Technology responded, and a spokesperson for that university stated that they would not speak on specific outreach efforts, but leadership at the university are working to speak with lawmakers to express their discontent with the tax.
Education Department data from 2019 show that Harvard’s endowment currently tops $39 billion. A 2019 Harvard financial report estimated that the university would be taxed nearly $50 million per year. Other wealthy private colleges, like Stanford University, with a $27.7 billion endowment in 2019, had an estimated tax liability of $42.9 million.
Gains in private charitable donations and endowment returns in the last fiscal year have pushed 19 more colleges’ endowments into the threshold for the tax.
The Senate currently has until the end of August to finalize any plan to revive a reconciliation bill.
