Endowments facing a new 1.4% excise tax on investment income could avoid that if they lower costs and commit more profits to middle-class students, under legislation introduced Tuesday by Rep. Tom Reed, R-N.Y.
The proposed Reducing Excessive Debt and Unfair Costs of Education Act is aimed at encouraging universities to lower costs for students and increase transparency in how colleges are spending their money. "We currently give these schools huge tax breaks and subsidies, and it is time they start serving the working-class taxpayer who supports them," Mr. Reed said in a statement.
Under the bill, which so far has no co-sponsors, the wealthiest universities would have to distribute 25% of endowment profits to students from working-class families to offset school costs.
Beginning in tax year 2018, large endowments will have to pay a 1.4% excise tax on net endowment income. The number of endowments subject to it could grow in the future because there are no adjustments for inflation. The tax applies to institutions with at least 500 students and net assets of $500,000 per student, and does not include state colleges and universities.
Mr. Reed has been a critic of large private university endowments, which he said in a previous statement have spent "more endowment money on hedge fund managers than in tuition assistance," and highly paid school officials.
A separate bill introduced March 8 by Rep. John K. Delaney, D-Md., and Rep. Bradley Byrne, R-Ala., would repeal the new excise tax on large endowments. The proposed Delaney-Byrne Don't Tax Higher Education Act, which has six bipartisan co-sponsors, is supported by the National Association of College and University Business Officers and numerous higher education groups. The bill was referred to the House Committee on Ways and Means.