In the days leading up to the U.S. Senate’s Saturday-morning vote to overhaul the nation’s tax code, higher-education groups caught wind of an obscure provision.
Capitol Hill staff members were reaching out with questions about the measure, said Steven M. Bloom, director of government relations at the American Council on Education, and his team was scrambling. “We had to figure out what it was,” he said.
What was it? An amendment, proposed by Sen. Pat Toomey, Republican of Pennsylvania, to exempt colleges that do not accept federal funds under Title IV from an excise tax that would hit certain private colleges with large ratios of endowment-value per student.
A week before Thanksgiving, the House of Representatives had passed its version of tax reform, setting the benchmarks for that tax at colleges with at least 500 students and endowments of $250,000 per student. The original Senate version included the same benchmarks. They would have left about 140 colleges subject to new taxes.
Here’s where Senator Toomey’s amendment came in. A handful of institutions do not accept federal funds under Title IV. The endowments of all but one of them are too small to be affected by the tax. That one is Hillsdale College, in Michigan. Its endowment is valued at roughly $350,000 per student.
“It seemed kind of baffling that a senator from Pennsylvania was proposing an amendment that effectively only helped one school in Michigan,” said Mr. Bloom.
But the college, as it happens, has long been a darling of conservatives, including the family of Education Secretary Betsy DeVos. Her relatives have been major donors to the college; her brother, Erik Prince, founder of the private-security company Blackwater USA, graduated from Hillsdale.
Was the amendment just a sop to Hillsdale — an attempt to keep a favored institution safe from the consequences of the tax bill?
Senator Toomey’s office told The Chronicle that other colleges that do not receive Title IV funding, though not affected now by the endowment tax, deserved protection from it should “their endowments and/or student enrollments grow.” During floor debate, he further explained the provision.
“What my provision does is it applies to any college that chooses not to receive funding under Title IV,” the senator said. “The theory is, if a college chooses to forgo federal money, and the students that attend have to find their own way to get there, it is diminishing the burden that that college would impose on taxpayers and so it is completely reasonable, in my view, to exempt such a college on the tax on endowments that we’re applying generally.”
Senate Democrats, who spotted the amendment Friday night, weren’t sold.
A debate ensued on the floor of the Senate.
“I can’t find anybody else in America who benefits from this particular provision,” said Sen. Ron Wyden, Democrat of Oregon. The amendment was unjustifiable, he argued.
It was also, by that time, superfluous — at least when it came to Hillsdale’s exposure to the endowment tax. Senate Republicans had amended the language in the provision for the excise tax to affect only colleges with endowment ratios of $500,000 per student. Hillsdale would not have reached the threshold.
Still, Democrats saw the bill, which became known as the “Hillsdale carve-out,” as an exemplar of the entire tax debate. “This, unfortunately, is the metaphor for this bill and how high the stench is rising in this chamber,” said the Senate minority leader, Charles E. Schumer of New York.
Sen. Jeff Merkley, Democrat of Oregon, offered an amendment designed to strip Mr. Toomey’s provision from the bill. Just after 1 a.m., the Senate voted on it. Senator Merkley’s measure passed, with four Republicans joining in a 52-48 vote.
It was the only Democratic amendment to succeed. The final vote to pass the tax bill came just before 2 in the morning.
Update (12/4/2017, 8:57 p.m.): This article has been updated with comment from the office of Senator Toomey.
Adam Harris is a breaking-news reporter. Follow him on Twitter @AdamHSays or email him at adam.harris@chronicle.com.
