On Thursday, House Republicans released a tax plan that includes a 1.4 percent tax on the endowments of private colleges. That might not sound like much, but for universities whose endowments are in the billions — of which there are many — that kind of money adds up fast.
This tax would likely affect 150 schools across the country, 15 of which are in Massachusetts, including schools like Harvard and MIT. However, because of the bill’s regulations on the size of school and size of endowment that qualify for taxation, Boston University is not one of them. The bill’s lack of implications for BU notwithstanding, this tax is ridiculous — for any school, of any size, with any financial situation.
The bill embarks on a mission that sounds noble enough — taxing the hefty endowments of rich universities who can more than afford the cost. However, when endowments are taxed, the universities are not the ones that end up suffering — students are.
Endowments serve many purposes, but probably none more so than providing students with financial aid and scholarships. The people who would bear the burden of this tax are students who rely on financial aid to afford the cost of college, not the colleges themselves. At BU, a larger proportion of our endowment each year is spent on student scholarships than on professorships, awards or research. This breakdown holds true for many other colleges as well. We might not realize it, but endowments play a key role in helping lower and middle-class students afford their educations. This tax would seriously hinder that.
And its effects might even go beyond students on financial aid. As schools see their endowments shrink, it is likely they would have to rely more heavily on students’ tuition to pay the bills. This allows for the possibility of even higher tuition costs — and that would affect students of every financial situation.
Like many other bills we’ve seen this year, the proposed tax is being thoughtlessly rushed through Congress. The plan was released on Thursday, and Congressional leaders hope to have it passed through both the House and the Senate by Thanksgiving. That kind of rush is beyond unnecessary — it’s downright careless. If our elected officials spent a little more time thinking about the actual implications of the bill, a tax on university’s endowments would certainly not still be included.
Ever since its release on Thursday, universities have been criticizing the plan, citing that rather than furthering any social or educational programs, the tax on endowments would just be working to offset the cost of corporate tax breaks. Simply put, this tax would not be helping the people who need help. In fact, it would be hurting them.
One of the reasons that endowments aren’t currently taxed is because colleges and universities are nonprofit institutions. Taxing nonprofits absolutely defies logic. The entire purpose of this class of businesses is to help people, to serve the community. The government does not need to be making money off of nonprofits of any kind.
The relationship between the government and higher education should be one where the government gives money to colleges and universities, not the other way around — no matter how big their endowments are. This tax plan is counterintuitive to the highest degree. It would be taking from the struggling student and giving to the corporate billionaire. It should be common sense to us by now — that’s no way to fund a government.