fRotate some For Republicans, paying more taxes in the wealthiest and most successful businesses in the United States will involve treason. But when these businesses were left-leaning universities, all bets were closed.
As part of the attack on elite universities, the Trump administration has frozen billions of dollars in federal funds for Columbia and Harvard and announced a plan to revoke Harvard’s non-profit tax-free status. Now, Congressional Republicans are considering taking action that will have greater long-term consequences for higher education: imposing huge taxes on university donations.
Historically, nonprofit universities are exempt from federal taxation. Congress imposed an annual investment income generated by the wealthiest universities from endowments as part of the 2017 tax cut, but it set it to 1.4%. This year, Republicans will likely include donation taxes in their larger, essential settlement bill, and they don’t need any democratic vote. An analysis by Phillip Levine, an economist at Wellesley College, shows that, for example, the mid-tax of the proposal would cost about $560 million. A 21% tax that matches the company's interest rate will raise that number to about $850 million. Unlike Donald Trump's legally suspicious executive order, no judge can overturn the rate hike of donation tax.
The tax on donations to the fattest universities has long been supported by the political left, a way to share their obscene wealth with people like Harvard and Yale in the name of fairness. (“Tax Ivy League donations and fund public higher education,” a title in the Journal of Socialism Jacobin. In the process, it has become something very different: not a tool to distribute educational resources more equitably, but a weapon to make elite higher education poorer, weaker and less influential.
yYou haven't The Ivy League must be regarded as a hotbed of Marxism to retain reservations for billions of dollars in schools in banks to receive huge annual subsidies. About half of all donated assets are held by only 20 institutions (less than 1% of U.S. universities). Over the past four decades, even considering inflation, the five largest private universities have increased by about tenfold in the past four decades. However, the number of students at these universities has remained the same, which means share Their education population decreased. The wealthiest universities use generous financial aid to donate to students who cannot pay the full price. But this may simply be because they are mainly recruiting wealthy kids. (As these universities accumulate enormous wealth and serve a small portion of their population, they exaggerate the value of fairness and inclusion.)
As a result, Massachusetts progressive Democrats are home to more than a dozen members of the Billionaire Club, most notably Harvard ($53.2 billion) and MIT ($24.6 billion) - which have been trying to impose end taxes at the state level since 2008. The state legislature is currently considering a long-term bill that would impose a 2.5% tax on the total value of any donation over $1 billion. Income will be attributed to the education costs of low-income and middle-income students in the state. Connecticut’s Democratic lawmakers are weighing a bill that would allow municipalities to establish their own donation taxes on local universities. New York lawmakers have spent years trying to pass legislation to force Columbia and New York University, two of Manhattan’s largest landowners, to pay property taxes that will be used to fund public universities in the state.
The right-wing version of the donation tax concept looks a little different. Republican lawmakers generally do not recommend using taxes from Stanford and Princeton to support the public education system. They essentially believe that universities have become so left-leaning to divorce traditional educational principles that they should no longer receive public subsidies. The key is punishment, not redistribution.
Senator Tom Cotton recently introduced a trick bill, the Wake of Donations Safety Tax Act, which would impose a 6% excise tax on 11 specific universities. (According to the Cotton Office, income will be "used to repay national debts and secure the southern border.") JD Vance argues that high taxes will force universities to curb "Dei and Woke Interanity."
Some Republican lawmakers are gesturing with a redistribution logic. For example, representative Dave Joyce, who proposed a bill that raised the tax rate to 10% of donation income and lowered the value of donated assets worth $250,000 per student to the university’s threshold, said his advice encouraged universities to “bear larger endowment share of students to provide financial aid to students” because tax coverage could be lowered under donation taxes.
In fact, available evidence suggests that taxed university donations themselves do not solve the affordability or exclusivity of higher education. Several studies have analyzed the consequences of the 2017 tax, which accounts for 1.4% of annual investment income from private universities, at least 500 paying students and donated assets of more than $500,000 per student. (This amount of money is not tied to inflation. In 2021, there were 33 universities eligibility. By 2023, the number has grown to 56.) Most affected institutions are not close enough to the threshold, so when their donations are taxed, they can pay with less money, and no new financial attacks on financial applications. (About half of the expenditure on donated income goes to financial aid.)
Indeed, according to one study, most schools did not make any detectable policy changes based on taxes. few possible Enrollment rates have been expanded to be lower than the gifts of each student – which is a positive result – but they seem to be overtaken by institutions that have increased tuition fees and cut aid. CJ Ryan, a law professor at Indiana University, co-authored one of the studies, and he predicted that the latter behavior would become more common if tax rates were raised. “What the universities we analyze are doing is passing on the tax costs to students and their families,” Ryan told me. “If the goal is to reduce the cost of higher education, that’s the opposite.”
Raising taxes will also limit resources for scientific research, an area that has been weakened by the Trump administration. The university uses an average of 15% to 20% of annual donation returns to support research and academic programs.
The wealthiest universities such as Harvard and Yale University may not be too much harmed by the core tasks under the influence of the donation tax. But even they don't have as much flexibility as you think. A large portion of the end-tax income of each university can only be used for certain purposes specified by the donor, such as a building with its name on it. This money cannot be redirected to pay financial aid, research budget or professor's salary.
For smaller institutions, higher donation taxes will be particularly painful. "If the target is Harvard, it will bounce the target and hit others," Christopher Marsicano, a professor of educational studies at Davidson College, told me. "It's not an imagination to believe that the entire community will now lose hospitals or lose employers or jobs." President Anne Harris told me that Grinnell College, based in Iowa, relies on 60% of the income from donations. To maintain a demand-blind admission policy, schools may have to make painful cuts. Wesleyan President Michael Roth told me that higher tax rates would “break our financial aid program in a very serious way.”
People like Harris and Roth are not selfless parties. of course The university president believes that taxing universities will be devastating. The more convincing fact is that right-wing supporters of the policy seem to agree.
Conservative activist Christopher Rufo, who has been the intellectual force of the Trump administration’s attack on higher education, said destroying college finances is the focus. “I think putting colleges in a recession, a downward budget, a greater pressure on competitive markets will be disciplined in a way that you can’t do administrative oversight with 150 additional ED bureaucrats,” Rufo told The New York Times. The government has tried to use federal funds to force universities to align with their political priorities and punish them if they refuse. Raising taxes on universities will further undermine their status.
The naked destructiveness of the current donation tax proposal has shut down many leftists and will in principle support raising taxes on wealthy institutions. Phil Hackney, a tax law professor at the University of Pittsburgh, spent years criticizing how the tax exemption approach would make the wealthy and institutions privilege everyone else. But, in light of the government's full-scale attack on higher education, he opposed efforts to increase taxes on colleges. "It is a terrible choice to attack the enemy with public policy," he told me. "My deep concern is that this will not be compensated for the damage to these institutions in a way we will regret."
However, this argument is unlikely to prevail when damage to universities is the focus.