In the tax bill signed into law by President Trump, Congress included an excise tax of 1.4 percent on investment income of private colleges and universities that have an enrollment of at least 500 students and assets of at least $500,000 per student.
Critics of this provision have cited the Republican majority’s partisan aim at schools located in blue states, in order to help fund the $1.5 trillion deficit created by the bill. The bill takes a sledgehammer approach to chastening this group of purportedly wealthier schools. A more nuanced approach would have been advisable, but this tax was designed to help offset the bonanza for wealthy individual taxpayers, and not to offer educational opportunity to more people.
Taxing income means the affected schools have less money to spend, and the government has more to spend. If schools spend less on financial aid, will the government be required to spend the tax revenues it receives to enhance financial aid programs, such as Pell Grants? The bill does not mandate how the tax dollars must be spent.
Does the bill exempt endowment funds that are restricted to financial aid, so that those dollars otherwise subject to the excise tax might remain available for that purpose? The answer again is “no.” Rather, it treats all endowment income as homogeneous, whereas such funds can be, and often are, created for specific purposes.
Did the bill incentivize donor support for financial aid by offering targeted tax incentives? No. It could have, but it doesn’t.
All of this is to say that the intent of the bill had everything to do with penalizing blue-state schools so that wealthy individuals and corporations could receive monumental tax breaks. It had everything to do with ensuring access for the wealthy and nothing to do with increasing access for the middle-class student.
Derek Wittner
dean of alumni affairs and development, Columbia College and University; vice president of alumni affairs and development, The Cooper Union
Kennebunkport
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