Effort to Reduce Tax on Income of Elite Higher-Education Endowments Dropped

Tax likely to remain at current level, at least for now. “The Harvard faculty club should lay in extra scotch for members to drown their sorrows,” according to a tax-policy expert.

Earlier this month, the House of Representatives’ Rules Committee released a version of H.R. 5376, styled as the Build Back Better Act, quietly eliminating an earlier-included provision that would have greatly reduced the excise tax on investment income of certain private, tax-exempt colleges and universities—mostly ones that would be considered elite, and with huge endowments.

The House is currently controlled by Democrats. Originally passed as part of the Tax Cuts and Jobs Act of 2017, when Congress was controlled by Republicans, the current 1.4% tax is imposed on colleges and universities whose student bodies are majority U.S. citizens, where more than 500 students are tuition-paying, and where total assets exceed $500,000 per student.

“The Harvard faculty club should lay in extra scotch for members to drown their sorrows with the news that the House has, at least for the time being, dropped its efforts to repeal the excise tax on the biggest college endowments,” according to Dean Zerbe—national managing director of alliantgroup, a tax consulting firm in Washington, D.C.

From 2001 to 2008, Zerbe was senior counsel and tax counsel to the then-chairman of the Senate Finance Committee, Sen. Charles Grassley of Iowa. For the committee, Zerbe conducted extensive oversight of charities—including colleges and universities with a particular focus on endowments.

There is no doubt that the steady drumbeat of press stories of colleges gone wild—especially from The Wall Street Journal—has chilled the climate against providing billions of dollars in tax relief for our elite universities,” Zerbe said in an e-mail interview.

“The public and Congress are shocked by the fact that top universities—such as Columbia and USC—are acting no better than carnival barkers in luring students to take loans of hundreds of thousands of dollars to pay for worthless degrees,” he continued.

Even worse, the leadership of these colleges—board members, administrators, and faculty—are effectively doing nothing substantive in response to these exposés and hoping it all just goes away. It is eye-blinking that college administrators and faculty members—95% of them who pride themselves on being fully-paid members of the woke—have been effectively silent on this fleecing of students—many of whom are low-income. Easier to police Halloween costumes then to confront abuses by your university that are destroying the lives of young people.

Depending on the future makeup of Congress, some think the higher-education excise tax could perhaps even be raised. Others have noted that the reasoning underlying the higher-ed tax’s original imposition could easily apply in other nonprofit contexts, too.


This article originally appeared in the Giving Review on September 22, 2021.

Michael E. Hartmann

Michael E. Hartmann is CRC’s senior fellow and director of the Center for Strategic Giving, providing analysis of and commentary about philanthropy and giving. He…
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