Some of the richest universities in the US are proposing a deal with the federal government that would allow them to spend more of their own money in exchange for a reprieve on a proposed tax on their endowments, according to a report.
Nearly two dozen elite schools — including Harvard, Yale, Princeton, Stanford, Duke and the University of Chicago — are backing a plan that would commit them to distributing at least 5% of their endowment value each year.
In return, they’re asking Congress to scale back a proposed 21% tax on their investment income, a massive jump from the current 1.4% rate, the Wall Street Journal reported.
The White House has framed the tax hike as a way to hold “woke, elitist universities” accountable.
President Trump has launched an aggressive campaign against elite universities, accusing them of hoarding tax-advantaged wealth, embracing “woke” politics and defying federal law.
His administration has moved to revoke their tax-exempt status, block access to federal research grants, and restrict international student enrollment — turning once-reliable sources of funding into pressure points.
The schools, which are part of a group called the Learn Alliance, circulated a proposal on Capitol Hill that outlines a compromise.
They’ll increase annual spending on things like financial aid and research, and in exchange, they’re asking lawmakers to scrap the House-passed tiered tax system in favor of a much lower flat rate — either 2.4% or 3.4% on investment income.
“What I hear from Republican members of Congress is a desire to ensure that colleges are using their charitable endowments to support today’s students and researchers rather than saving too much for the future,” Princeton University President Christopher L. Eisgruber told the Journal.
“Those are valid concerns, and this proposal directly addresses them.”
Eisgruber argued the plan would free up billions of dollars for student-focused spending and local economic development, while a steep tax hike would have the opposite effect — discouraging schools from using their endowments.
The Learn Alliance says its plan would generate at least $30 billion in additional spending over a decade.
That far exceeds the $6.7 billion in federal revenue the current House-endorsed tax is expected to raise during the same time period, according to the Joint Committee on Taxation.
If adopted, the proposed 5% distribution rule would mark a major shift.
Private foundations already follow a 5% payout rule, but colleges and universities have long resisted such mandates, arguing they need flexibility to manage for the long term. The new House bill would also increase the tax on private foundation investment income to 10%, up from the current 1.39%.
“This would be a significant shift in national policy,” Liz Clark, vice president of policy and research at the National Association of College and University Business Officers, told the Journal.
She added that schools are under unusual pressure in the current political climate to show they’re putting their money to work.
Sen. Chuck Grassley (R-Iowa), a senior member of the Senate Finance Committee and frequent critic of large endowments, said Thursday that lawmakers were only beginning to dig into the endowment tax issue.
“I’ve heard from small colleges in Iowa who say these tax increases would hit them hard,” he said.
According to a recent analysis by higher education research group Ithaka S+R, most schools that would fall under the proposed 21% tax rate currently distribute less than 5% of their endowments annually.
Over a five-year period ending in June 2023, the report found that several top universities failed to meet the 5% mark in most years.
“Even small percentage increases in spending would translate to a significant jump in dollar terms because the endowments are so large,” said Catharine Bond Hill, an economist at Ithaka.
Not all schools are taking the same approach. A group of smaller colleges is lobbying Congress to cap the investment tax at 1.4% for institutions with fewer than 5,000 full-time students.
These schools, which lack the diversified funding sources of larger institutions, say the higher rates would hit them disproportionately hard.
Meanwhile, another coalition — including Vanderbilt University and Washington University in St. Louis — is pushing for a system that rewards schools with tax breaks if they meet certain benchmarks, like enrolling a higher percentage of low-income students.
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