College Endowment Tax Hike Softened in Senate Tax Bill Draft

Senate Republicans want to soften a tax hike on college endowments, first proposed by the House in the GOP’s massive tax-and-spending bill.

The Senate version of the bill would create a three-tiered excise tax on investment income of certain large private colleges and universities, though the rates are lower than those proposed by the House. The tax rate starts at 1.4% for universities with a student-adjusted endowment between $500,000 and $749,999 and grows to 8% for those with a student-adjusted endowment of more than $2 million.

The House had proposed four phased increases for the excise tax, also based on a university’s endowment size per student, that tops out at 21%. Harvard, Yale, and Stanford universities would face the maximum rate based on the size of their endowments in 2024. The House and Senate proposals exclude qualified religious institutions from the tax.

The current tax on investment income of certain large private colleges and universities is 1.4%.

• Top-tier private universities have taken on more debt to protect their finances as the Trump administration enacts large-scale funding freezes and proposes research spending cuts. Colleges say increasing the endowment tax threatens their research capabilities and ability to attract the best students.
• Republicans are pushing to enact the $3 trillion tax package by July 4.