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Action Alert: Federal Tax Changes

Dear Colleagues:

I am writing to give you an update on the status of the House tax reform bill.  Since my previous Action Alert on Thursday, November 2, the bill has been discussed and amended during mark up in the House Ways and Means Committee.  While certain provisions have been changed, the bill is still a serious concern to colleges and universities and the students we serve.  It remains critically important that you continue to reach out to your elected officials in both the House and Senate to express your concerns with this proposed legislation. (Updated talking points)

Tax on Endowments

Essentially, the only provision on which progress has been made is the proposed excise tax on private college endowments.  Since Thursday, when bill provisions leaked, the following changes were made:

  • Institutions with less than 500 FTE students were exempted from the tax.
  • The excise tax amount on investment returns was reduced from 2% to 1.4%.
  • The ratio for affected institutions was raised from $100,000 per student to $250,000 per student.

Combined these changes reduce the number of affected institutions from around 250 to around 68.  While this is an important change, it also raises additional public policy arguments against this provision.  We oppose the provision on principle, irrespective of how many or how few private colleges and universities feel the impact.  Having such a small number of institutions paying an excise tax on endowments under the revised provision, coupled with the elimination of tax exempt bonding for private college, increases the appearance that these provisions are merely an effort to target the private sector.  The result will further drive up costs and steer students away from our sector.  (We would not support similar taxes on public colleges.)

It’s also important to note that Congress has focused during the last few years on whether or not colleges and universities with large endowments are doing enough to assist students with the cost of college.  This new excise tax does nothing to help students – it simply takes private donations to private colleges and redirects a portion into the pocket of the federal government.

The main argument Members of Congress are using to support the excise tax is that it brings private colleges and universities in line with the tax on private foundations.  THIS IS NOT TRUE

Several Provisions Remain Unchanged

  • The elimination of Tax Exempt Bonds for Private, but not public colleges.
  • The elimination of the Student of the Loan Interest Deduction.
  • The elimination of Sec. 127, Employer Provided Educational Assistance.
  • The elimination of 117(d) Tax Free Tuition Remission.

Since Thursday, I have heard from many NAICU members who have been in contact with their Congressional representatives.  I know this outreach is working.  I urge you to continue to reach out to your elected officials.

Thank you for your continued efforts on behalf of students and the private sector, as we work for fair and equal treatment for both private, nonprofit and public institutions, and the students we all serve.



David L. Warren, Ph.D.
National Association of Independent Colleges and Universities