UHND.com - Notre Dame Football, Basketball, & Recruiting

Colleges Hope to Stave Off Big Tax Hike by Pledging to Spend More Endowment Cash
Harvard, Stanford and others want Congress to lower tax rates in Trump’s bill. In return, they would agree to a requirement to spend billions more.

Some of the nation’s wealthiest universities are hoping to avoid a huge potential tax hike by pitching an alternative plan to Congress: a pledge to spend more of their own money.
The current version of President Trump’s tax bill, which passed the House last month, includes a hefty, 21% annual tax on the wealthiest schools’ investment income, up from the current 1.4% rate. The plan could add hundreds of millions of dollars to many schools’ annual tax bills. The White House said recently that the tax increase would create accountability for “woke, elitist universities.”
Now, nearly two dozen schools, including many of the wealthiest, support a requirement to distribute 5% of their endowments’ value annually. Backers of the plan include Harvard, Yale, Princeton, Stanford, Johns Hopkins, Duke and Rice universities, as well as the University of Chicago, according to people familiar with the group.
The schools hope that in exchange for the payouts, Congress will dramatically scale back the magnitude of the tax hikes, according to people familiar with the effort and an outline of the plan recently shared with Senate staffers and viewed by The Wall Street Journal.
If enacted, the proposal from the group, called the Learn Alliance, would affect a larger group of several dozen schools whose endowments are subject to a tax on their investment incomes. Under the House bill, some schools would be subject to 14%, 7% or 1.4% tax rates depending on how many dollars their endowments manage per U.S. student. In place of the tiered system in the House bill, the schools propose a tax on investment income at 2.4% or 3.4%.
Schools would commit to spending more in such areas as student financial aid and teaching, which they would prefer over paying significantly more in taxes that would go to the federal government.

“What I hear from Republican members of Congress is a desire to ensure that colleges are using their charitable endowments to support today’s students and researchers rather than saving too much for the future,” said Princeton President Christopher L. Eisgruber. “Those are valid concerns, and this proposal directly addresses them.”
Eisgruber said the plan would mean schools would spend billions more on student financial aid, research and regional economies, while increasing the tax would reduce endowment spending.
The outline shared with Senate staffers estimates that the plan would lead to at least $30 billion in additional spending over a decade. The Joint Committee on Taxation estimated that the endowment-tax plan in the House-passed bill would generate $6.7 billion in revenue over a decade for the federal government.
A 5% minimum distribution is a requirement for many private foundations, but one that schools have long resisted. (The House bill would raise private foundations’ annual endowment investment income-tax rate to as high as 10%, from today’s 1.39%.)
“As a national policy, it would be a significant change,” said Liz Clark, vice president of policy and research for the National Association of College and University Business Officers.

It couldn’t be determined what, if any traction, the proposal might be getting among lawmakers. Sen. Chuck Grassley (R., Iowa), a member of the Senate Finance Committee and a longtime critic of schools that don’t significantly spend their big endowments, said Thursday that lawmakers were just starting to discuss the bill’s endowment-tax provision. He said he has heard from some small colleges in Iowa that the tax hikes would be a problem.
U.S. colleges and universities often distribute less than 5% of their endowments’ value each year despite criticism that they are hoarding their assets and not spending enough on students. That schools are taking the step of proposing more regulation on themselves reflects the extraordinary pressure higher education is facing under the Trump administration, said Clark, the college-association official.
Ithaka S+R, a New York nonprofit research and consulting service focused on higher education, analyzed the endowment payouts of a dozen schools that could land in the 21% tax bracket under the GOP bill.
For the five-year period ended in June 2023, Ithaka found that most of the schools in most of the years fell short of spending 5% of their endowment’s value. Many schools said they try to preserve their endowments to serve current and future generations of students.
Even modest percentage spending increases “would mean, in dollar terms, quite a lot of additional spending” because of the endowments’ size, said Ithaka’s Catharine Bond Hill.
Other schools are working together to try to revise the president’s tax bill in ways that address their own funding models. A group of small colleges is lobbying to cap the tax on endowments’ annual investment income at 1.4% for schools with fewer than 5,000 full-time enrolled students.
These schools typically don’t have additional revenue streams beyond tuition and alumni donations and rely heavily on their endowments. They say the tax hikes in the House bill would disproportionately hurt them because they have less-flexible funding models than other schools.
Another network, which includes Washington University in St. Louis and Vanderbilt University, is pushing for revisions that would reward schools with tax exemptions for meeting specific metrics, such as having a certain percentage of their student bodies come from lower-income families.


Link: https://www.wsj.com/us-news/education/colleges-hope-to-stave-off-big-tax-hike-by-pledging-to-spend-more-endowment-cash-353606fb?mod=hp_lead_pos5