The Republicans of the US Congress put pressure for an increase in taxes on American universities, under a new bill defended by President Donald Trump who was closely adopted in the House of Representatives last Thursday.
Supporters of the bill argue that a provision relating to higher education establishments is designed to target “awakened” universities.
Universities fired executive orders and Trump decisions to change education and immigration to the country, as well as reprimand on pro-Palestine demonstrations that took place on American university campuses last year.
The new tax plans aim to increase taxes on what American universities earn from their endowments.
So what exactly is an endowment?
An endowment refers to funds or assets given to a university to keep it financially in the future.
Endowments generally include overtime donations from elders, other donors and businesses.
The bill before the American Congress establishes tax rates for universities according to their effective allocations by student – by dividing their total allocations by the number of full -time students in the establishment.
The profits of investments made from allocation will be imposed, if the bill becomes law.
Have universities been taxed so far?
Most colleges have not been taxed on their endowments for centuries.
The income of 1909 exempted educational establishments as non -profit organizations which operate for the public interest “exclusively for religious, charitable or educational purposes”. Consequently, educational establishments have not paid taxes on their investment gains.
This changed during Trump’s first presidential term. In 2017, the US Congress adopted the tax on tax reductions and jobs, which introduced a tax of 1.4% on colleges with endowments per pupil of at least $ 500,000, and at least 500 students who paid tuition fees. Consequently, the tax only applies to some of the richest institutions in the country.
This endowment tax generated around $ 380 million in 2023, in 56 universities that met the tax bar.
What do the Republicans want to do now?
On May 22, the House of Representatives under republican control adopted, with a 215-214 vote, which Trump and the perpetrators of the legislation called the only major bill. In this bill, a proposal to revive taxes on elite universities.
The proposal is leveled and aims to perceive a tax of:
- 1.4% on the investment yields of institutions which have a student endowment of more than $ 500,000 but less than $ 750,000.
- 7% on institutions that have a student endowment of more than $ 750,000 but less than $ 1,250,000.
- 14% on institutions that have an endowment per student of more than $ 1,250,000 but less than $ 2,000,000.
- 21% on institutions that have a student endowment of more than $ 2,000,000.
These percentages apply to universities which had at least 500 students paid by tuition fees during the previous taxable year and where 50% of their full-time paid students are in the United States. Universities identified as “qualified religious institutions” are exempt from this tax.
The proposal was written by republican legislators in the way and means committee, the oldest organization of the chamber’s tax writing.
“For too long, universities have received a beneficial treatment of our tax code while ignoring the interests of taxpayers,” said Jason Smith, republican of Missouri and chairman of the Chamber’s ways and means, shortly after the adoption of the bill.
An information sheet published by Smith indicates that the tax “holds elite universities, which operate more the large companies and other exempt entities of responsible tax”.
The bill is now heading to the Senate, where the Republicans hold 53 seats and the Democrats hold 47. We do not know when the vote will take place, but Trump urges the Republican senators to adopt it quickly.
On May 22, Trump wrote on his social platform Truth: “Thank you to each Republican who voted yes on this historic bill! Now, it’s time for our friends from the US Senate to go to work and send this bill to my office as soon as possible!”
How many colleges could be affected by this?
A New York Times survey revealed that at least 58 schools could potentially be affected by this.
Large universities could be the highest tax slab.
During the year 2024, the total endowment of Harvard University was worth around 53.2 billion dollars – the largest of all universities. There are 24,596 students in Harvard, which means that the endowment per student is $ 2.16 million. This means that he will have to pay a tax of 21% if the bill becomes a law.
The allocation of the University of Yale is estimated at $ 41 billion and the University has 15,490 students, bringing the endowment per student to around 2.7 million dollars. Although the Institute is currently paying the tax of 1.4%, it will also have to pay a tax of 21% if the bill becomes law.
Similarly, Stanford’s endowment is $ 36.5 billion and has 17,529 students, which is $ 2.1 million in the endowment per student. Although the Institute is currently paying the tax of 1.4%, it will have to pay a tax of 21% if the bill becomes law.
On the other hand, the total endowment of the University of Pennsylvania was 22.3 billion dollars in June 2024 and the Institute has 24,219 full -time students, which makes the endowment per student $ 920,764. Although the Institute is currently paying the tax of 1.4%, it will have to pay a tax of 7% if the bill becomes law.
But because the bill determines which universities are taxable according to the endowments per student, it is not only the grandes écoles which will be affected: still smaller private institutions, which have already paid 1.4% tax, could now pay much more.
The Pomona College of Claremont, California, had a total endowment of $ 3 billion in 2024, of which the Institute uses 5% each year.
The University claims that 60%, or 36 million dollars, of financial aid in Pomona, is covered by the endowment, which also covers about half of the institute’s operating budget. It has 1,747 students, which means that Pomona has an endowment per student of $ 1.7 million. Until now, he has paid a tax worth 1.4% of the endowment; If the bill is adopted, it will be taxed at 14%.
Can this be applied?
If the bill adopts Trump in the Senate is almost certain to sign it.
But the version of the Legislative Assembly which leaves the Congress could be different from that adopted by the Chamber.
“Even if the Senate adopts the tax, it is possible to modify the amount of the tax and the criteria of its request in the process,” said Emily Saulnier, editor -in -chief of the Boston College Law Review, publication at the Boston College Law School.
The centrist and conservative republicans of the Senate are divided on the bill. Chamber Mike Johnson urged Republican senators to revise it as little as possible. If the senators adopt a revised version, the room will have to vote on this new text so that it is transmitted to Trump, which will then sign it.
The Wisconsin Republican Senator, Ron Johnson, opposed the bill in its current form, arguing that it will increase the national deficit, which is the difference between the amount of money that the federal government spends and the amount it earns thanks to income. Johnson said that the House bill would add “4 dollars” to the deficit. In 2024, the deficit was 1.83 billion of dollars.
Kentucky republican senator, Rand Paul, raised similar concerns during an interview with Fox News on May 25, saying that even if he supported parts of the bill, he “exploded the debt”.
But if the bill adopts and is signed by Trump, “it will apply to all colleges and universities” which meet the conditions established in legislation, said Saulnier.
How did universities react?
“This legislation presents a more important threat to Yale than any other bill in memory,” said Yale president Maurie Mcinnis in a statement published on May 22.
“The endowment tax exercises more financial burden for students by making college less affordable. Taxing schools are reducing income available for financial aid, “she wrote, adding that” the endowment tax will undermine the country’s world leadership in technology “.
At a teaching school meeting in 2024, Harvard president Alan M Garber called an increase in endowment taxes “the threat that keeps me at night”.
How did we get here?
The Trump administration has repeatedly attacked higher education establishments, alleging that they do not limit anti -Semitism, or for “illegal and immoral discrimination” in the form of diversity, equality and inclusion programs (DEI).
Last year, pro-Palestine demonstrations and camps appeared in several American universities, notably Columbia, Yale, New York University (NYU) and Harvard.
On January 29, Trump signed a decree entitled “additional measures to fight against anti -Semitism”, ordering executive department to submit a report on all the criminal and civil authorities available to combat anti -Semitism.
One day after having signed this order, Trump was quoted in an information sheet on the White House, saying: “For all resident foreigners who joined the pro-jihadist demonstrations, we have put you in note: come 2025, we will find you, and we will expel. I will also quickly cancel the student visas of all the sympathizers of Hamas. ”
Trump has since frozen the federal funding of several universities, including Columbia and Harvard.
With this risk funding, universities depend even more on their endowment funds to support the research they carry out.
However, endowments are subject to restrictions and donors decide how most of the endowment is spent. In the case of Harvard, donors decide where 70% of the annual endowment distribution is spent.
On May 22, the Trump administration revoked Harvard certification to register new foreign students. This decision was temporarily blocked by a federal judge.
On Tuesday, the government ordered American embassies abroad to stop planning new visa interview appointments for foreign students and exchanging visitors, according to an internal cable seen by press agencies.
