Private universities with large endowments are fretting over a provision in the House-passed “big, beautiful” bill that would significantly raise the tax rate on their annual investment income.
House Republicans’ proposal would raise the tax rate on certain universities’ endowment profits from 1.4% to 21%, a move that could add hundreds of millions of dollars to their annual tax liability. Universities whose massive endowments provide billions of dollars of wealth at their disposal are warning that failure to strike the proposal from President Donald Trump’s sweeping tax and spending package would deal a “devastating” blow to their operating budgets.
“This is a devastating piece of legislation for us,” Swarthmore College vice president for finance and administration Robert Goldberg told the Wall Street Journal. “It takes something that’s fairly manageable to something that’s not tenable.”
GOP lawmakers have defended placing colleges’ endowments in their crosshairs, arguing that universities are no longer fulfilling their core mission and instead operate more like hedge funds rather than prioritizing the education of students. Additionally, congressional Republicans allege that many of the universities that would be subject to a higher tax on their endowment earnings allowed antisemitism to fester on their campuses during the Biden administration.
“For too long, universities have received beneficial treatment from our tax code while disregarding the interests of taxpayers,” House Ways and Means Committee chairman Jason Smith wrote on X. “The One, Big, Beautiful Bill increases the university endowment tax, subjecting the largest endowments to the corporate tax rate.”
The endowment tax proposal is a part of the Trump administration’s efforts to rein in the alleged abuses of private universities that have become bastions of left-wing ideology.
The bill’s endowment tax hike would exempt public and religious institutions and would raise the tax rate on private universities using an endowment-per-student metric.
Swarthmore College, a Pennsylvania liberal arts college with an endowment of $2.7 billion as of June 2024, would be subject to a 14% tax rate on annual investment income generated by its endowment, according to the Wall Street Journal. Universities with endowments valued between $1.25 million to $2 million per student would be taxed at that rate.
Private colleges with endowments between $750,000 and $1.25 million per student would be subject to a 7% tax on annual investment income while universities with endowments of more than $2 million per student would be subject to a 21% tax — the same rate that corporations pay.
At least five institutions — Harvard, Princeton, Stanford and Yale universities and the Massachusetts Institute of Technology (MIT) — are expected to be in the top 21% tax bracket.
Yale University President Maurie McInnis called the endowment tax proposal “a greater threat to Yale than any other bill in recent memory” shortly after the president’s landmark legislation passed the House early Thursday morning. The university’s endowment was at roughly $41 billion in fiscal year 2024 and earned more than $2 billion in annual endowment income last year.
The 21% tax rate would force Yale to pay $690 million in taxes on their annual endowment income, according to Wellesley College economist Phillip Levine. The additional tax liability is more than a half a billion dollar increase compared to the $46 million the school pays under the current 1.4% rate.
Harvard University, with an endowment of roughly $53 billion and per-student endowment of nearly $3 million, would owe an even higher amount in annual taxes on endowment profits under the House-drafted proposal. The Trump administration moved to cut off all remaining federal funding to the university Monday, alleging Harvard has failed to crackdown on race discrimination and antisemitism.
A spokesperson for Yale and Harvard universities did not immediately respond to the Daily Caller News Foundation’s request for comment.
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