In 2017, when Trump passed his first budget bill, his allies inserted into it an unprecedented tax on institutions of higher education that have large endowments. The tax was 1.4%. But that 1.4%, though it seemed small, was money that would not be available for low-income students at expensive colleges and universities. The next logical step–once the government starts taxing nonprofits– would have been to tax megachurches but that didn’t happen.
This year, the Trump administration has included in its “One Big Ugly Budget Bill” a dramatic increase in the tax on higher education endowments.
Instead of 1.4%, the highest rate would climb to 21%.
This onerous tax would limit colleges’ ability to cover the tuition of students who are fully qualified but lack the financial resources to pay. The inevitable result of this tax will be to restrict the number and size of scholarships.
I received this letter from President Paula A. Johnson of Wellesley College, my alma mater. Dr. Johnson grew up in Brooklyn, where she graduated from a large public high school (Samuel J. Tilden), then to Radcliffe and to Harvard Medical School. She was a cardiologist before she was chosen as Wellesley’s president almost a decade ago. She is dedicated to providing scholarships for students who need them.
She wrote to all alumnae:
It is hard to overstate the importance of this moment for higher education. We are being threatened in previously unimaginable ways that cut to the core of our values and endanger a large proportion of our students. At Wellesley, we are deeply concerned about changes that could affect academic freedom, our need-blind status, and our ability to build a diverse community, one made richer by our international students.
One of the most significant threats comes from the likelihood of a major increase to the tax on college endowments. Last month, the U.S. House of Representatives passed a budget bill that would raise the tax from 1.4% to as much as 21%. Under this proposal, Wellesley would be taxed at 14%, which means our liability under the tax would increase from $3 million, where it is currently, to $30 million per year—an amount equal to fully funding financial aid for 325 students.
When you consider that more than two-thirds of the $82 million Wellesley spent last year to support financial aid came from our endowment, the disastrous impact of this tax becomes clear. This is a punitive tax on students and families who need financial aid.
The tax would also have a disproportionate impact on small colleges like Wellesley that, without other revenue streams such as graduate programs or large research budgets, rely on endowments to support their mission.
At Wellesley, 43% of our operating budget comes from the endowment, making it our largest source of revenue. A tax increase would have a severe impact on our academic program and our ability to meet students’ financial needs. In addition, the tax would override the intent of generations of alumnae who have given to the endowment to support financial aid and our academic mission.
That is why Wellesley has joined a coalition of more than two dozen small colleges and universities from 17 states across the country that together serve more than 50,000 students. The coalition’s core argument, which we are sharing with members of Congress, is that endowments are not a luxury for small colleges; they are essential to continuing our commitments to access, opportunity, and educational excellence for students.
If this totally unwarranted tax is passed, the number of meritorious students from low-income, even middle-income families would shrink dramatically.
This is wrong.
Raise taxes on corporations and billionaires.
Tax megachurches.
Raise the taxes and tariffs on super yachts.
Don’t tax the endowments of institutions of higher education.
Diane Ravitch's blog 