Colleges and universities are beginning to comprehend that they are a disfavored group at risk in the Trump era.
Any ambiguity about that was cleared up when President Trump and congressional Republicans delivered a message of disapproval in the form of a new 1.4 percent tax on the gains of large university endowments included in the tax overhaul. The new tax will hit schools such as Harvard and Yale that many conservatives see as part of the antagonistic Left.
The new tax isn’t big, projected to bring in just $1.8 billion over 10 years by taxing a few dozen schools with big endowments.
But higher education trade groups, who see it as a retributive policy, fear that it could be the proverbial camel’s nose under the tent, just the beginning of GOP efforts to tax them. Even without further legislation, the tax will hit more schools as time goes on, as more endowments grow above the $500,000 per student threshold for applicability.
And while congressional Republicans distance themselves from the framing that it’s an attack on colleges, they agree that more taxes and oversight could be in store for higher education.
“The tax code itself isn’t the final word here,” said House Ways and Means Committee Chairman Kevin Brady, a key author of the tax law. “We’re going to want to continue to … monitor those endowments to make sure that they continue to be focused on the students.”
The stated purpose of the new excise tax was not to punish colleges, but instead to align the tax treatment of university endowments with private foundations such as the Ford Foundation, which face a 2 percent excise tax on earnings if they don’t hit a certain level of distributions.
But both higher education representatives and outside analysts see GOP antipathy as a motivation for the tax.
“It’s hard not to interpret all of this as that conservatives are going after higher education,” said Steven Bloom, director of government relations for the American Council on Education, a group representing colleges and universities.
Schools will aim to get the tax repealed, Bloom said. The sector also is trying to blunt the impact of the tax before it goes into effect, said Karin Johns, director of tax policy for the National Association of Independent Colleges and Universities, partly by lobbying Treasury Secretary Steven Mnuchin to declare that all endowment funds are used directly in education and thus exempt from the tax.
But the tax is a symbol of the larger underlying issue, which is the rising antipathy on the Right that allowed for the tax to make it into the overhaul.
“The tax was born of the perception that we are all elite, liberal, and instead of nonprofit – tax evaders,” Johns said. “Terrible misconception.”
The rising conservative frustration with colleges is clear in polling data. As recently as 2010, according to Pew Research polling, Republicans were almost as favorably disposed to colleges as Democrats, with 58 percent saying that they have a positive effect on the way things are going. In the past few years, though, support has collapsed. As of 2017, 58 percent said that colleges and universities have a negative effect.
And some right-of-center intellectuals are happy to say explicitly that big colleges should be taxed.
Universities were originally afforded tax benefits to shield them from economic pressures for the purpose of “preserving and transmitting the values of our civilization,” Roger Kimball said. “But the truth of the matter is that many of them have turned their backs on that mission in the most ostentatious way.”
Kimball, the editor of the New Criterion, a journal of literary and cultural criticism, and the author of Tenured Radicals: How Politics Has Corrupted Higher Education, said that he generally opposes new taxes, but that he favors the tax as a way of communicating disapproval to schools that “disparage Western civilization” as racist, sexist, and patriarchal.
A related issue is the sheer wealth of schools such as Harvard and Yale, which have endowments of $37 billion and $27 billion, respectively.
In 2015, Republican Rep. Tom Reed of New York proposed taxing large endowments unless a certain share of earnings were dedicated to student aid. The idea was that the threat of a tax could push down costs, starting with the Ivy League.
Reed’s concept was never introduced as legislation. And the tax law doesn’t tie the tax to financial aid. Instead, it merely hits big schools.
“I think universities are being put on warning that their behavior is being seriously watched … and that there’s a perception out there that there’s been abuses,” said Richard Vedder, an Ohio University professor who studies higher education, referring to the perception that colleges are spending on administrators and perks for students rather than on aid.
Vedder’s own research indicates that relatively little of endowment earnings serves to lower the cost of college, contrary to the industry’s own assertions, he said.
Brady described the excise tax as a “a minimal tax but a strong encouragement to use those endowments to lower the costs of a college education.”
Affected colleges still gain far more subsidies in the form of tax benefits, subsidized student loans, and other programs than they lose from the excise tax, noted James Miller, an economist at Smith College. But the tax should serve as a warning to schools that they invite more trouble from Republicans the longer they are seen as engaging in financial mismanagement and fomenting left-wing activism. “It’s stupid to pick one side, because when the other side gets in power, you don’t have leverage over them,” he said. “That’s why most industries don’t do that.”
The idea of a new tax on schools is controversial among Republicans. As the bill headed toward completion, Rep. Lamar Smith, R-Texas, led a bipartisan letter opposing the tax in a letter to congressional leaders, writing that it would harm schools’ ability to offer financial aid. The network of political groups backed by the Koch brothers also came out against the tax, saying it would place a new burden on taxpayers.
But the tax is now in place, and the risk for universities is that fighting it may elicit even more opposition from the GOP, said Daniel Bennett, a professor at Baylor University who has researched higher education.
Instead, he suggested, “university leaders could rethink kind of their mission in terms of cutting back on some of the more nefarious expenses and practices they have, as well as providing a more congenial campus and environment that protects free speech.” In that case, Bennett said, the prospect of an antagonistic GOP would be diminished.
