House Republicans Finalize Plan to Increase Endowment Tax Up to 21%

House Republicans on the Ways and Means Committee released the full version of a long-awaited tax bill Monday that does for higher ed exactly what they suggested it would in a draft version Friday: dramatically increase the excise tax on wealthy colleges’ endowments.

If the legislation passes, the tax rate for each institution would range from 1.4 to 21 percent, depending on the size of its endowment and the number of students it enrolls, according to the 339-page bill. As with the existing endowment tax, the increases would apply only to private institutions.

“Under the economic policies of President Biden and Washington Democrats, the wealthy and well-connected benefitted from taxpayer handouts,” said committee chairman Jason Smith, a Republican from Missouri. “The Ways and Means Republican tax bill ends special interest giveaways and will hold the woke elite and entities that benefit from the tax code accountable.”

But higher education lobbyists said the excise tax will be incredibly detrimental to the sector.

“It essentially takes bad policy and makes it worse,” said Steven Bloom, assistant vice president of government relations for the American Council on Education. “Almost 50 percent of endowment spending is on financial aid … This money is going to come right out of that. It’s just really unfortunate.”

Conservatives, however, praised the proposal.

“I’m pleased the primary provisions of my bill, the Endowment Tax Fairness Act, are included in the House Ways and Means reconciliation proposal,” Rep. Troy Nehls, a Texas Republican, told The Daily Caller. “Every day, we are one step closer to delivering President Trump’s one big, beautiful bill. Let’s get it done and do some good for the American people.”

The bill, which will be heard in a committee markup Tuesday afternoon, is part of a broader omnibus package called reconciliation. The goal is to cut billions in federal spending and develop new revenue sources where possible in order to fund some of President Donald Trump’s top agenda items, like further immigration enforcement and cutting taxes for the wealthy.

Other House committees have already advanced their sections of the reconciliation package with regard to higher ed, including a sweeping plan to upend the student loan system and complicate the calculation of college costs. But the Ways and Means bill is one of the three most highly debated components that have yet to advance; the others sit in the Agriculture and Energy and Commerce Committees and deal with SNAP benefits and Medicaid funding, respectively.

Now, with just 14 days left until the chamber’s ambitious Memorial Day deadline for a final vote, leaders of the three committees are rushing to get the bills to the floor.

An Ideological Attack?

Little has changed since a draft of the Ways and Means Committee reconciliation bill was released Friday. It still uses the same $500,00 per-student threshold for the original 1.4 percent endowment tax, which was passed during the first Trump administration in 2017. From there the tax rate increases in tandem with the endowment per-student ratio. Institutions with endowments of $750,000 to $1.25 million per student would be hit with a 7 percent tax. That rate would climb to 14 percent for colleges with endowments valued at $1.25 to $2 million per student, while colleges with endowments of $2 million or more per student would pay 21 percent.

A subtler change, which was not identified in the draft bill, says that international students can no longer be included in the enrollment tally. That means that a few institutions that have large endowments but also high head counts made up largely of international students, like Columbia University, will now be subject to the tax.

Karin Johns, tax policy director at the National Association of Independent Colleges and Universities, said that in prior news reports and legislation proposals, Republicans have said the aim is to encourage colleges to enroll more American students, but she doesn’t quite buy that argument.

When asked if the new tax qualification standard could have anything to do with Republicans’ recent crackdown on international students, particularly those from countries of concern or who have been involved in campus protests, she said, “I certainly think there’s some legitimacy to one leading to the other.”

Bloom also suggested that the increase over all is an ideological attack on higher ed institutions.

“Their general philosophy is anti-tax, but they’re doing that in this bill itself. They’re trying to lower people’s taxes—individuals and corporations and wealthy people with the estate tax. Why is higher ed one of the few … subjected to increased taxes?” he said.

(Private religious institutions are among the few exempt from the tax, regardless of their endowment size.)

Although the legislation will likely face pushback from Democrats, both Johns and Bloom said they expect the bill to move through the markup with ease.

The idea of an endowment tax was heavily contested, even by some Republicans, when it debuted during the first Trump administration. But conservative animosity toward higher education has grown since then, which could mean that the provision passes easily through the House this time.

“I don’t know if any of the majority members of the committee would speak in opposition to the endowment tax increases,” Johns said.

Bloom was more cautious about making a definitive prediction.

“It’s hard to know whether there will be disagreement among Republicans,” he said. “But I would imagine opposition within the GOP, if any, will become apparent later in the House and then in the Senate.”