Proposed tax on private college endowments will hurt students

Re: “The GOP’s proposed college endowment tax is bad news for Minnesota’s Carleton and Macalester,” by Sam Brodey. 

Your story on the proposal by House Republicans to impose an excise tax on the endowments of some private colleges and universities, including Carleton and Macalester, appropriately notes that doing so would limit these institutions’ abilities to provide financial assistance to low- and middle-income students.

Rep. Jason Lewis’ case for taxing private college endowments by comparing them to private foundations is misleading and misguided. To wit:

• Private foundations are very different from college endowments. Foundations exist to give away money while higher education endowments exist to financially support academic institutions in perpetuity. A federal tax on endowments simply means they will have less money for such vital things as student aid, faculty salaries, and scientific research.

• College and university endowments do not benefit from a “carve out” in the tax code. They have not been taxed heretofore because they are nonprofit, tax-exempt organizations.

• Only endowments held by colleges and universities are taxed. Other nonprofits with substantial endowments — like art museums — are not targeted.

If this were really about treating foundations and endowments alike under the tax code, it would be structured differently. The truth is that this provision is nothing more than a way to help pay for corporate tax cuts. If this plan is approved, colleges and their students will have less money and corporations will have more.

Terry W. Hartle is a senior vice president, American Council on Education (ACE), Washington, D.C. ACE represents the presidents of nearly 1,800 colleges and universities and related associations.

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Comments (1)

  1. Submitted by Richard Miller on 11/18/2017 - 10:35 pm.

    It isn’t a tax on college endowments

    The tax is a 1.4% tax on college investment income not on the college’s endowment. Let’s suppose a college (like Macalester) has an endowment of $500 million and make s 10% return (in a good year). That would be $50 million. 1.4% of $50 million is $700,000. $700000 would be .14% of the endowment. Right now everyone is whining about the injustice of corporations having their tax on income reduced to 20% which is about 14 times as high as the tax that Republicans are proposing for colleges. If the colleges have a bad year and make nothing on their endowments, they pay nothing in tax.

    That would be the tax. Right now most nonprofits have to pay such a tax – colleges have been an exception.

    I do think that the next time you write about this tax, you at least characterize it as an income tax and not an endowment tax – even if you still want to complain about it, and even if you want to persist in using overly alarmist rhetoric about it.

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