The Senate Finance Committee proposed a hike in donations to private universities and universities, but in a draft plan released Monday, but not within the scope of the recently passed bill required by the House.
The wealthiest institutions have a less dramatic GST of up to 8%, while the House plans to 21%, but the Senate proposal keeps the House hierarchy, some of which depend on the value of each student’s endowment. The current interest rate for affected institutions is 1.4%.
Institutional lobbyists and university presidents warn that a sharp increase in House plans will undermine their ability to provide demand-based aid and debilitate for some low-income students. Although the Senate iteration has somewhat eased, it hasn’t been as much as they had hoped.
“The Senate version of the donation tax is better, but it’s still a bad and harmful tax policy,” said Steven Bloom, assistant vice president of government relations at the U.S. Board of Education. “They will make money that might be used for financial aid and research purposes on campus and send it to Washington, where it is primarily for purposes not related to higher education.”
Senate committee plans, such as the House proposal, remain exempt from religious colleges and require universities to take international students away total sales when calculating the endowment value of each student. If passed, the provision would significantly increase the tax rates for institutions such as Columbia University that have 20% or more foreign students.
The Finance Committee’s legislation also includes cutting Medicaid, which could put pressure on state budgets, as part of a broader series of bills that would make major changes to higher education policies and cut spending and taxes to cover President Donald Trump’s priorities, including increasing deportation and tax cuts for the wealthy. The House version of the settlement bill, which passed a large Beautiful Act, passed last month. The senator’s goal is to pass its version by July 4, while compared to the traditional 60 votes, the settlement process requires only 51 votes.
Unlike the House proposal, universities that do not receive federal financial aid will be completely exempt from taxes. Hillsdale College President Larry Arnn slammed the House plan in a column last month to attack the agency’s independence. (Hillsdale does not participate in the federal financial aid system.)
“The resources entrusted to Hillsdale College are not drawn from public finance,” Arn wrote. “Those who believe in our mission are free to give them. Tax these gifts are taxed to charity itself, to bear those who will raise the burden. It is to weaken those who do well because they are free to do it. It weakens them and strengthens the federal government, turning around the intentions of our founders.”
Hillsdale isn’t the only university to delay growth. In recent weeks, private institutions have provided their own alternatives to Congress, both large and small.
Some of the largest and wealthiest research institutions will be affected by taxes (such as Harvard, Stanford and Princeton University), and each year 5% of their donation value is used for a 2.4% donation tax rate in exchange for a donation tax rate in exchange for a much lower donation tax rate in exchange for a much lower donation tax rate. Wall Street Journal Report. Bloom agreed that if taxes were to be increased, he would like to see some kind of incentives introduced, such as a financial aid spending threshold, to lower the tax rate.
“They don’t have the motivation to make schools behave in the way we think they want the school to behave,” he said.
Other institutions recommend that the tax rate should be based on the percentage of the endowment income the institution spends on student financial aid annually, or how many students come from low-income backgrounds and receive federal Pell grants.
A coalition of 24 smaller institutions, including Grinnell and Davidson College, would be hit hardest by the home donation tax, proposing to adjust the excise tax rate based on the number of students enrolled. They say universities with less than 5,000 students have different economic models than 30,000 institutions.
Grinnell President Anne Harris spent part of his education on the endowment tax hazard last week, saying Monday night that the Senate plan still disproportionately assumes smaller institutions. She noted that her institution may still face a tax of up to 8%.
“I’m very grateful for all the work ongoing, obviously all the considerations for what we saw this afternoon, but with that being said, the current proposals still disproportionately afford small colleges,” Harris said. “You’ll find schools like Grinnell College, with 1,700 students, a small university in rural areas that bears a greater tax burden than research institutions in big cities.”
She could only speculate that the senators insisted on using a layered structure for simplicity, but added that a “simple fix” would be to create regulations that put all small private universities in the lowest brackets and keep the current 1.4% tax rate.
Harris hopes there will still be further compromise opportunities and says she will continue to advocate for small liberal arts institutions like herself. But at the same time, her executive team will continue to plan all possible options to find the best course of action to protect student aid if the bill passes.
“All responsible options that provide the most money for financial aid and mission fulfillment are part of our plan with the Board,” she said.
