On Friday, the Internal Revenue Service proposed extensive guidelines for a new 1.4% excise tax that several wealthy universities with endowments of at least $500,000 per student will face following the GOP’s 2017 tax overhaul. According to current projections, approximately 25 to 40 universities will end up owing money under this new tax.
The new tax is a response to long-held concerns by lawmakers that despite consistently raising tuition costs, several major universities have been hoarding billions of dollars under the guise of their educational endowments. While these multibillion dollar endowments often surpass the gross domestic product of many developed countries, many have long wondered why they cannot be used to drastically reduce the financial burden faced by students of those universities, who can still sometimes shoulder six figures of debt upon graduation.
Unsurprisingly, the new taxes have faced a loud chorus of opposition from many Ivy League colleges. Some of the loudest complaints are coming from Harvard University administrators, whose college endowment ranks first in the United States at approximately $39 billion dollars, which is larger than the 2018 GDP of Latvia. According to former Harvard University President Drew Faust, the new tax will impact the growth of several university initiatives, the main goal of which is growing the endowment even more.
“What [the endowment tax] will do is put constraints on our ability to fund the variety of undertakings that are central to our mission — financial aid and research, public programs, the variety of endeavors across the University,” Faust complained. “Its ultimate impact will be on limiting the growth in the endowment, and the growth in the endowment is what funds the programs.”
Despite their vocal concerns, university administrators have admitted that the tax is unlikely to affect Harvard’s overall business investment strategy, as the university would have only owed roughly $40 to 50 million dollars based on 2017 financial estimates.
In addition to Harvard, the endowment tax is also projected to affect several other high-power wealthy universities, including Princeton, Yale, Harvard, and Stanford.
John Patrick (@john_pat_rick) is a graduate of Canisius College and Georgia Southern University. He interned for Red Alert Politics during the summer of 2012 and has continued to contribute regularly.
