To stick it to “woke, elite universities,” House Republicans have included a new tax on private college endowments in their “big, beautiful bill.” The rate would top out at 21 percent for endowments of at least $2 million per student. While endowment sizes can be unseemly—Harvard has a stash bigger than the GDP of most countries—the tax would be bad policy for several reasons.
First, the tax system should never be used to punish people based on their political opinions. But that is clearly what House Republicans are doing when they identify the targets of their tax as “woke.” Punishing ideological adversaries might not be their only motivation—they might want new revenue or think college endowments get sweetheart tax treatment—but it is unquestionably a motive.
Second, what about the sweetheart treatment possibility? That seems dubious, at least relative to how nonprofits generally are taxed.
I am not an expert on taxation, but it appears that non-university endowments, such as private foundations and nonoperating foundations, face nothing like a 21 percent net investment income tax, instead facing 1 to 2 percent taxes or 5 percent payout requirements, respectively. Unless I’m missing something, rich colleges would be getting much harsher treatment. And that is not the end of the targeting: Public universities, which have huge, direct government funding advantages over private institutions, would be exempted, as would religious institutions meeting certain criteria, including being founded after July 4, 1776. That puts a very small group of institutions—look at the years when Ivy League institutions were founded—in the crosshairs.
The beautiful bill would also raise net investment income taxes on some foundations, but the top rate would only be 10 percent for those with assets of $5 billion or more. And it, too, would violate the “no political punishment” rule I stated above, with committee Republicans saying explicitly that the target is “radical left-wing organizations in the tax-exempt sector.”
Third, endowments consist of money voluntarily given to schools by funders. That is what we should want in a free, diverse society. Meanwhile, the federal government cumulatively gives hundreds of billions of taxpayer dollars to college students, which they eventually deliver to institutions and to higher ed-based researchers who often undertake wasteful or ineffective projects. What Congress should do is phase out this forced taxpayer funding, requiring the Ivory Tower to be built on voluntary giving. You know, like endowment funds.
If people want to give their own money to “woke, elite universities,” who is government to judge? Instead, it should worry about its own, forced funding of higher ed.