University Leaders Urge Changes to Endowment Tax

March 8, 2018

The leaders of 49 wealthy postsecondary institutions sent a letter to congressional leaders Wednesday urging them to repeal or amend the so-called endowment tax enacted as part of last year's Republican tax overhaul.

College costs or student debt will not be addressed by the tax, wrote the university leaders, who hold top executive positions at institutions potentially affected -- including Amherst, Bryn Mawr and Franklin & Marshall Colleges; the Juilliard School; Princeton Theological Seminary; Brown, Duke, Rice and Stanford Universities; and Washington University in St. Louis.

“Instead, it will constrain the resources available to the very institutions that lead the nation in reducing, if not eliminating, the costs for low- and middle-income students, and will impede the efforts of other institutions striving to grow their endowments for this very purpose,” the letter said. It went on to warn that taxing college and university resources will force institutions to provide less in student aid, spend less on research and dedicate less to public engagement in their surrounding communities.

It’s not clear whether the letter, addressed to both Republican and Democratic leaders in both houses of Congress, will lead to changes in tax law. But it demonstrates that the leaders of institutions with large endowments have not dropped the issue in the months since the tax reform package was signed into law.

“Endowments are not kept in reserve to be drawn on only occasionally or on a rainy day,” the letter said. “In fact, across our institutions, endowments support a significant and growing portion of our operations; for many, endowments provide almost half of annual revenues.”

Although it is commonly referred to as an endowment tax, the law in question places a 1.4 percent excise tax on net investment income at colleges and universities with at least 500 students and more than $500,000 in net assets per student. Institutions have faced uncertainty about which assets will be counted. Estimates vary, but dozens of colleges and universities could have to pay the tax.

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