On March 7, President Eisgruber and 48 other university and college presidents sent a letter to members of Congress expressing concerns over the effect that the Tax Cuts and Jobs Act will have on endowment earnings.
The Act calls for an excise tax on certain private colleges and universities consisting of 1.4 percent of their net investment incomes. The letter called this tax “unprecedented and damaging” and explained why it would prevent institutions of higher learning from supporting students and advancing research. Signers urged Congress to repeal or amend the tax in order to work towards increased access to affordable education.
The letter was signed by presidents and chancellors of diverse institutions ranging from medical schools to performing arts colleges, including all Ivy League schools except for Columbia University. M. Craig Barnes, the president of the Princeton Theological Seminary, signed the letter as well.
“The net investment income tax will impede our efforts to help students, improve education, expand the boundaries of knowledge, advance technological innovation, and enhance health and well-being,” the letter said.
In addition, the letter emphasized the importance of endowment funds to the daily functions of academic institutions. For many schools, the letter said, these funds account for up to half of annual revenues.
According to the Office of Communications, endowment earnings at the University make up more than half of the annual operating budget and fund initiatives such as increasing the size and diversity of the student body.
The letter countered the idea that the tax will reduce the cost of attending college or the issue of student debt by arguing that the endowment reductions will make it more difficult for universities to lower their costs for low- and middle-income students.
The University’s financial aid system operates on a grant rather than loan basis, meaning students don’t have to repay financial aid. According to the University’s admissions website, students in the Class of 2021 with family incomes below $65,000 do not pay for tuition, room, or board. Over 60 percent of undergraduate students receive financial aid.
The letter also stated that the new tax will threaten not only universities but all charitable institutions. It drew a distinction between colleges and non-operating private foundations, which are subject to an excise tax and which primarily pursue their missions by making grants.
“Where foundations have their own operations, like an art museum or library, they are exempt from taxation. Colleges and universities, by definition and like other public charities, have significant operations, and that is to the benefit of us all,” the letter said.
The letter concluded by urging members of Congress to “revisit this misguided policy in the near term.”
The letter was addressed to Senators Mitch McConnell, Chuck Schumer, and Orrin Hatch; Representatives Paul Ryan, Nancy Pelosi, and Kevin Brady; and ranking members Rep. Richard Neal and Sen. Ron Wyden.
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