Republican Plan to Tax Elite Colleges Could Hit in Unexpected Places

New York Times

20-05-2025

McPherson College, in the middle of Kansas wheat country, is a small school that accepts the vast majority of its applicants, many from surrounding towns. It is best known for its degree in classic car restoration.
The college might still end up a potential target in a Republican plan aimed primarily at the Ivy League, which would impose billions in taxes on the investment returns of several dozen private colleges and universities.
The goal of the proposal, laid out in a report last week from Republicans on the House Ways and Means Committee, is to hold accountable 'woke, elite universities that operate more like major corporations.' McPherson could be on the list because it has an endowment of $1.6 billion, thanks to an anonymous donation a few years ago.
An analysis by The New York Times shows that at least 58 schools would potentially be subject to the tax, based on the size of their endowments and enrollments. The list includes highly selective and wealthy institutions like Harvard and the Massachusetts Institute of Technology, but also smaller schools like Berry College in Georgia and DePauw University in Indiana.
The tax idea has been discussed by Republicans since at least President Trump's first term, when a 1.4 percent tax was imposed on some endowments. Momentum to broaden it grew in 2023, when JD Vance, then a senator from Ohio, proposed a 35 percent tax on endowments of $10 billion and larger.
Now, as President Trump has made challenging the nation's wealthiest colleges a centerpiece of his second-term agenda, the endowment tax could become a potent weapon. During Mr. Trump's second presidential run, his campaign promised to collect billions 'by taxing the large endowments of private universities plagued by antisemitism.'
The tax, part of the House proposal that President Trump has called the 'big, beautiful bill,' would be tiered depending on the size of the school's endowment and enrollment, with a top rate of 21 percent for those with endowments of at least $2 million per student.
That rate would hit nine schools, including Harvard, Yale and Princeton. The proposal threatens to cost Harvard about $850 million a year, Yale $690 million year, and Princeton $586 million a year, according to estimates by Phillip Levine, an economics professor at Wellesley College, which would also be subject to the tax.
The stated aim of the tax, according to the proposal, is to ensure elite schools in the country 'can no longer abuse generous benefits provided through the tax code.'
But the plan would envelop other institutions as well, including some in rural parts of Republican states. The earnings from McPherson's endowment would be taxed at 7 percent, potentially costing the school nearly $8 million a year, for example.
The criteria for the tax excludes some schools with large endowments, such as the University of Southern California, because of their large enrollment numbers. Columbia University, which has been targeted by Republicans over accusations that it mishandled claims of antisemitism, might not have qualified either, because of the size of its student population in relation to its endowment.
But lawmakers tweaked the 'per student' formula used in the bill to exclude the school's large number of international students. As a result, Columbia would pay $79 million a year.
While the Times's analysis is based on endowment size, under the proposal's current language the list is likely to grow larger because the tax would also apply to other forms of university investment income, including royalties. The existing 1.4 percent tax hit 56 schools in 2023, according to data from the Internal Revenue Service.
Republicans and others argue that the universities should use more of their endowments, some which have accumulated tax-free over centuries. Mr. Trump said on the campaign trail that the proceeds from the tax would 'endow the American Academy,' a free virtual university that he said he would create. But a plan for that school has not materialized, and any money collected through the new taxes would go into the government's general fund.
Schools have pushed back against the tax, noting that they use their endowments to fund the education of poor and middle-class students. Of the $30 billion that schools spent in endowment funds in 2024, nearly half went to financial aid, according to an analysis by the National Association of College and University Business Officers.
(Vice President Vance was a beneficiary of this need-based aid. He attended Yale Law School as a Marine Corps veteran with a financial aid package that he later wrote 'exceeded my wildest dreams.')
Christopher L. Eisgruber, Princeton's president, wrote in a recent message that 71 percent of students in this year's freshman class received no-loan financial aid funded by the school's endowment, with the average grant totaling $73,000.
'This tax is a scholarship tax,' said Steven M. Bloom, an assistant vice president at the American Council on Education, a large industry trade group that is opposing the proposal.
Williams College, a liberal arts school in Massachusetts, would be subject to at least a 14 percent tax. In an interview, its president, Maud S. Mandel, said the school devoted $92 million from its endowment this year to help over half the school's student body.
'Any tax on the endowment would have a direct impact on that,' she said.
And in California, Pomona College's vice president, Jonathan B. Williams, said the tax would cost the school $40 million a year, the equivalent of 460 full scholarships. Its enrollment is about 1,700.
'This will shift the cost of tuition squarely on to families,' he said.
Universities have dispatched lobbyists to Capitol Hill to try to water down the plan's impact.
Williams College has partnered with other colleges to hire a lobbying firm. DePauw University said it was also working with a group of small colleges to tell lawmakers how they would be affected.
Four medical schools could also be on the list, including Baylor College of Medicine in Houston, which is not affiliated with Baylor University. Lori Williams, vice president of communications for the medical school, wonders whether independent medical schools were included accidentally.
'We have been engaging with legislators to seek to remedy this,' Ms. Williams said.
Lawmakers crafted an exception for religious institutions that could exempt some of the 58 schools included in The Times's analysis. But schools formed before July 4, 1776, would be excluded from that exemption. That means Ivy League schools opened by religious groups before the nation's founding would not be eligible.
David A. Super, a professor at Georgetown University Law Center, said that could raise legal issues.
'Particularly problematic is reliance on a date: Some faiths have established more colleges in some eras, some faiths have established more in other times,' Mr. Super said. 'That starts to look like discrimination among religions.'
Matthew Lindsey, president of the Kansas Independent College Association, hopes the religious exemption will ultimately protect McPherson, which was founded by the Church of the Brethren, a pacifist Protestant denomination.
'Clearly McPherson is not the target of this legislation,' Mr. Lindsey said, noting that the bill 'very much talked about woke colleges. They're not talking about McPherson in that language.'
McPherson, in McPherson, Kan., became rich practically overnight in 2022, when an anonymous donation grew its endowment to $1.6 billion from $50 million. The school's classic car restoration program has also attracted support from the comedian Jay Leno, aclassic car collector.
McPherson officials did not respond to a request for comment, but Mr. Lindsey said the school used its endowment to help students graduate debt free. He said his association had been working to notify the Kansas congressional delegation of the predicament.
Representative Tracey Mann, a Republican and a supporter of President Trump who represents the congressional district that includes McPherson, did not respond to requests for comment.