As part of the 2017 Tax Act, Republicans enacted a controversial 1.14 percent excise tax on endowment returns. The tax is imposed on private universities with at least 500 students and $500,000 of assets per student. Last year, university presidents and other industry groups unsuccessfully rallied against the tax, noting that tax would not address the cost of college or student indebtedness.
In a March 7 letter to congressional leaders, universities recycled many of the same arguments in an attempt to persuade lawmakers that the endowment tax will not have the desired effect. University presidents noted that the endowment tax “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.”
In the letter, university presidents did not offer an alternative to the tax, though universities are currently working on a proposal that would provide them with a tax credit for the amount of grants and scholarships provided to students, allowing them to attend free of cost. Some in the GOP, like Rep. Tom Reed (R-NY), have indicated a willingness to work with these educational institutions to modify the endowment tax so that it only affects universities that do not spend enough of their endowment dollar on financial assistance.
Several hurdles lie ahead for the universities. For starters, the proposal hasn’t been scored, but it’s likely to cost over $1 billion. Universities also need a vehicle to attach their legislation to — top contenders are the FY 2018 omnibus and the FAA reauthorization bill. Additionally, Republicans will need support from Senate Democrats to move the endowment tax proposals.