Tax on university endowments passes

Alvin Powell:

Graduate students across the nation dodged a financial bullet Wednesday, even as dozens of prominent universities took a hit in the form of a new tax on university endowments and other investment income. The tax will weaken financial aid, faculty and research initiatives, and other institutional programs that support students, professors, and medical and scientific studies.

Harvard President Drew Faust, who worked against the graduate and endowment taxes, warned that the new endowment tax represents an unprecedented attack on the tax-exempt status of nonprofits and charities because it taxes, for the first time, income for such an institution’s core mission — in this case, education.

The endowment tax is included in the $1.5 trillion tax package passed by the U.S. House and Senate, which was billed as a massive tax cut for the country, but whose earlier versions included increased taxes on higher education to help pay for cuts to corporate and income taxes. Among the most controversial aspects were provisions that would have taxed as income free tuition provided to graduate students and removed the ability to deduct student loan interest from income taxes.

In response to an outpouring of protest from university presidents, graduate students, and some lawmakers, the final version dropped those measures but nonetheless retained the 1.4 percent tax on net investment income for institutions whose investment assets are greater than $500,000 per student.