Senate matches House’s 1.4% tax proposal for college endowments

The Senate version of the Republican tax bill would tax wealthy private college endowments at 1.4 percent of net investment income, the same levy as the House proposal introduced last week.

Colleges are lobbying against the House plan, calling it a cash grab that’s detrimental to their educational missions. The latest version of the House bill affects roughly 70 U.S. schools whose endowments hold more than $250,000 per student. The Senate proposal uses the same threshold.

Congress has been eyeing the pot of assets held by colleges, more than $500 billion for some 800 schools. Many endowments are the richest they’ve ever been, boosted by robust performance of global equities for the year ended in June. Much of the focus over the last two years from Congress has been on how schools spend their money and how endowments could help lower the cost of college for many Americans.

Pedestrians walk down a path on the Yale University campus in New Haven, Conn.
Pedestrians walk down a path on the Yale University campus in New Haven, Connecticut, U.S., on Friday, June 12, 2015. Photographer: Craig Warga

Two congressional committees sent the richest 56 private schools an inquiry in early 2016 about their endowments, stepping up scrutiny of tax-free earnings for the funds and deductions for donors.

“Tax reform has been a collaborative process and we’re trying to make some tough decisions,” Veronica Vera, a spokeswoman for Congressman Peter Roskam, the Illinois Republican who is tax policy chairman for the House Ways & Means Committee, said in an email earlier this week. “One aspect of this has always been trying to find a way to appropriately deal with college endowments.”

The Senate proposal is effective for taxable years beginning after Dec. 31, 2017.

It would affect schools with at least 500 tuition-paying students during the preceding taxable year. The number of students is based on the daily average number of full-time students attending the institution, with part-time students being taken into account on a full-time student equivalent basis.

Bloomberg News
Tax reform Tax breaks Finance, investment and tax-related legislation College planning
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