The first bill, the American Workforce Act, introduced Sept. 8, would provide high school graduates $9,000 in vouchers to be used for employer-led workforce training, according to Mr. Cotton's website. The cost of the vouchers would be covered by levying a 1% tax on the fair market value of assets held by private college endowments at the end of each fiscal year.
The Student Loan Reform Act, which levies a similar tax, would require private endowments to put forward at least 5% of their investment income toward their educational mission and penalize higher education institutions when student-borrowers default on their loans.
"It strikes me that that is a place to go where there are well-to-do foundations who are making significant amounts of money (and) are engaged in the same sort of transactions that are taxed at a private level," said Henry Olsen, senior fellow at the Washington-based Ethics & Public Policy Center, a think tank that has publicly supported the legislation.
There are conditions for both pieces of legislation: In order for the tax to be levied, the college must enroll more than 500 full-time students and have an endowment worth more than $2.5 billion, or $500,000 per full-time enrolled student. The college also cannot have a religious mission, according to Mr. Cotton's website.
Net investment income from college endowments funds scholarships, academic programs and school facilities, and are taxed at an annual rate of 1.4%, a rate established in 2017 as part of the Tax Cuts and Jobs Act.
New data from the Internal Revenue Service show that 33 schools could fall under the proposed tax, according to the Wall Street Journal.
Last year, $68 million in tax revenue was collected based on the schools' endowment income, the story noted, saying that original estimates projected $200 million when the Tax Cuts and Jobs Act was being debated.
"It's a step in the right direction, but it's still dramatically too low," Mr. Olsen said.
"If you're talking about trading securities, private sector, you would be taxed depending on your income, 10% to 20% capital gains plus an additional net investment tax."
While both pieces of Mr. Cotton's legislation would generate tax revenue, the National Association of College and University Business Officers said the measures would not be an effective transfer of wealth to needier students.
"The tax on college and university net investment income does the reverse (of charitable giving)," said Liz Clark, vice president of policy and research at NACUBO. "And results in fewer dollars available for students, research, and mission-related pursuits."