Less than three months after an overhaul of the nation’s tax code was signed into law, a pair of federal lawmakers has introduced bipartisan legislation to repeal a provision that was roundly opposed by higher education.
The Don’t Tax Higher Education Act, introduced on Thursday, is sponsored by Rep. John Delaney, Democrat of Maryland, and Rep. Bradley Byrne, Republican of Alabama, and would repeal the levy on university endowments in the new tax law.
“America’s colleges and universities are one of our singular assets as a country. We lead the world in higher education, and it gives us an incredible advantage in today’s high-tech, high-skill global economy,” said Delaney in a written statement. “Colleges and universities rely on their endowments to provide essential funding for financial aid, support difference-making research and teaching, and effectively manage complex long- and short-term costs.”
The provision on university endowments was one of many that drew the ire of higher education in the recent discussion to revamp the tax code. Like other provisions under consideration, including a tax on tuition waivers that was ultimately stricken from the final bill, it has roots in the tax-reform package proposed by Rep. Dave Camp, Republican of Michigan, in 2014.
The Tax Reform Act of 2014, as it was called, worried higher-education advocates for some of the steep cuts it proposed in student and family benefits, as well as some more-direct hits to university funds. Camp, who has since left Congress, called for a 1-percent tax on the investment income of endowments at private colleges with at least $100,000 in assets per full-time student.
In the original version of the new tax law, proposed last fall by Republicans in the House of Representatives, the plan to tax endowment earnings nearly mirrored that language — at least $100,000 per student — but raised the tax to 1.4 percent and set a minimum threshold for students enrolled. A Chronicle analysis at the time found that the proposal, as written, would have applied to fewer than 150 colleges and would have generated an estimated $3 billion over 10 years.
The proposal seemed to many higher-education leaders to be a gateway for future taxes on university funds. Sure, the tax applied only to private colleges with large endowments now, but what would happen when Congress was again trying to find revenue in some future tax reform?
“The damage caused by those changes would be exacerbated by the proposed endowment tax, which would siphon millions in donated funds away from crucial priorities and would set a dangerous precedent of taxing nonprofit institutions — a practice that is likely to only escalate in scope and scale as lawmakers seek offsets for other cuts in the future,” wrote Margaret Spellings, president of the University of North Carolina system and an education secretary under President George W. Bush, in an opinion essay.
‘Deep Objections’
Similar statements dotted the higher-education landscape. House Republicans ultimately raised the threshold to $250,000 per full-time student, and the Senate set the number at at least $500,000, which is how it appears in the final bill.
Still, the tax — and attempts to shield some colleges from it — became one of the most hotly debated parts of the discussion to overhaul the tax code. Some lawmakers argued that a proposal to exempt colleges that do not receive federal funds was simply a carve-out to benefit a conservative darling. Meanwhile, a last-minute change that would have exempted colleges that did not charge tuition was eliminated on the grounds that it violated a key Senate rule.
One institution has been able to find its way out of the levy since the new code was enacted. Berea College, a small college in Kentucky that charges no tuition, was exempted after a provision in a recent budget deal shielded it from the tax. Other institutions were not so lucky, and on Wednesday leaders of those colleges sent a letter to House and Senate leaders to express their “deep objections.”
“The new tax establishes a precedent that threatens all charities,” they wrote. “We urge you to revisit this misguided policy in the near term and look forward to working with you to advance the goals of access, affordability, and success for students across the country.”
That concern was shared by Byrne, who has been working with Delaney for the last several weeks to build support for the new legislation, which was unrelated to the Wednesday letter.
“While the impact of the excise tax on college endowments may be small today, I worry about future growth and expansion of this misguided tax on higher education,” said Byrne, a former chancellor of a community-college system, in a written statement. “We should all be looking for ways to increase access to higher education, and endowments play a very important role in funding scholarships, student aid, and important research initiatives.”
Adam Harris is a breaking-news reporter. Follow him on Twitter @AdamHSays or email him at adam.harris@chronicle.com.
