Representative Troy E. Nehls (R-TX) has introduced the Endowment Tax Fairness Act, a bill that would raise the excise tax (indirect tax on specific goods) on certain private university endowment profits. The excise tax would increase from 1.4% to 21%.
This bill comes after the enactment of the Tax Cuts and Jobs Act (TCJA) of 2017 legislation. Prior to this bill, net investment earnings on endowments of private colleges and universities were not taxed. The TCJA then levied a 1.4% excise tax on certain private universities and their endowment profits annually.
These universities include: Harvard University, Yale University, Princeton University, Stanford University, Massachusetts Institute of Technology (MIT), the University of Pennsylvania, Northwestern University, Washington University, Duke University, and Vanderbilt University.
As of Fiscal Year (FY) 2022, endowments subject to the tax hold a combined $270 billion of assets under management.
Rep. Nehls believes this tax properly represents the taxes that most Americans face.
“Elite private universities have accumulated and sit on massive university endowments and pay a tax less than 2% on the investment earnings of their endowments, which is far lower than what most hardworking Americans pay in taxes,” said Congressman Nehls. “Meanwhile, these universities have significantly increased tuition on America’s youth, which has overwhelmingly surpassed the average annual inflation rate. This is unacceptable. My bill would put elite universities with massive endowments on notice by holding them to the same tax standard as corporations.”
Specifically, the Endowment Tax Fairness Act would accomplish these feats according to Rep. Nehl's press release:
- Raise the excise tax levied on annual private university endowment profits from 1.4% to 21%, in line with the corporate tax rate, beginning after the date of enactment of the legislation.
- Only apply to private colleges and universities with 500 or more students with an aggregate fair market value of assets of at least $500,000 per student of the institution, and more than 50% of the student body is located within the United States.
- Revenue derived from this bill would be deposited in the general fund of the Treasury and be used for national deficit reduction purposes.
Congresswoman Lauren Boebert (R-CO) cosponsors this legislation.
