Republican Proposal Would Impose 21% Tax on University Endowments

- A new congressional bill seeks to levy a 21% tax on the endowments of wealthy universities.
- More than 50 colleges currently pay a 1.4% tax on endowment income.
- Proceeds from the tax would help reduce the federal deficit.
- Proponents of endowment taxes say universities should curb tuition hikes and help more students, while opponents claim such measures are merely punitive.
A new Republican proposal wants Harvard University to help reduce the federal deficit.
The Endowment Tax Fairness Act seeks to levy a 21% tax on the endowments of wealthy universities, such as those in the Ivy League.
The bill introduced by U.S. Rep. Troy Nehls, R-Texas, on Jan. 15 would increase the existing 1.4% endowment tax instituted as part of the 2017 Trump Tax Reform Plan. Specifically, the tax applies to colleges with at least 500 students and more than $500,000 in endowment per student.
In 2023, 56 colleges paid this tax, resulting in more than $380 million in revenue. Where that money goes isn’t entirely clear.
What does 1.4% translate into for each institution? In 2019, Harvard paid $49.8 million, while Stanford University paid $42.9 million.
Under this new 21% law, Harvard would pay roughly $504 million—more than half a billion dollars. At the end of the last fiscal year (2024), the university’s endowment stood at $53.2 billion, distributing $2.4 billion in income, which is the amount that would be taxed.
For Stanford, whose endowment is expected to generate $1.9 billion in fiscal 2025, the tax burden would amount to just under $400 million.
And where will this money go? All revenue will be “deposited in the general fund of the Treasury” and be used for national deficit reduction purposes, according to the bill.
Congressman Nehls, the bill’s author, believes wealthy universities should be taxed the same as big companies.
“Elite private universities have accumulated and sit on massive university endowments and pay a tax less than 2% on the investment earnings of their endowments, which is far lower than what most hardworking Americans pay in taxes,” Nehls said in a statement.
“Meanwhile, these universities have significantly increased tuition on America’s youth, which has overwhelmingly surpassed the average annual inflation rate. This is unacceptable. My bill would put elite universities with massive endowments on notice by holding them to the same tax standard as corporations.”
The logic behind Republican-led endowment tax increases seemingly operates at cross-purposes.
Nehls’ bill, in part, seeks to dissuade universities from raising tuition, yet it might have exactly the opposite effect. Universities rely on endowment returns to fuel the operating budget. At Harvard, 37% of the university’s budget was funded by the endowment in 2024.
In theory, a tax siphoning off more money from the endowment income would result in less operating cash, requiring the institution to draw funds from elsewhere, including tuition revenue. Tuition increases could come as a result.
Legislation of this nature also assumes wealthy universities should be doing more to help low-income students and reduce student loan burdens.
“Elite universities should not be profiting off our students and federal student loans,” said U.S. Rep. Mayra Flores, R-Texas, who in 2022 proposed a similar bill to raise the endowment tax to 10%. “Instead of helping the next generation of professionals in America, they are harming them with increased costs and decades of payments.”
Here again, the tax increase could prove counterproductive. Using Harvard as an example, 20% of its endowment is earmarked for scholarships and student support. Increasing the tax burden might reduce the amount of aid available for students.
Of course, universities are free to determine how best to meet this tax burden. One-fifth of Harvard’s endowment remains unrestricted, meaning the university can use the income however it wishes, including satisfying a tax levy.
But the overall implication is that less endowment income means less cash for the university’s operations, including student support. Taking additional money away from an institution and expecting it to be more generous constitutes faulty logic.
That’s why critics instead call such measures punitive.
“It’s simply a punishment, a political tool,” David Greene, Colby College’s president, said of the endowment tax in an interview with The New York Times. “If you do that, you have to realize who you’re actually punishing. And it’s going to be students.”
Republican rhetoric supports the notion of politicians “punishing” universities for political gain. President Donald Trump said universities harbor “Marxist maniacs,” while Vice President JD Vance called them “the enemy.”
When Arkansas Sen. Tom Cotton introduced a bill in 2023 to institute a 6% excise tax on wealthy universities, he called it the “Woke Endowment Security Tax Act.”
Trump proposed using endowment taxes to create a free online “American Academy” that would be free of “wokeness” and “jihadism.”
Today’s elite institutions, Republicans contend, are hoarding assets while harboring radical extremists who are indoctrinating today’s youth, promoting illiberalism, eroding First Amendment rights, and permitting antisemitism on campus.
In turn, they’re using endowment taxes to gain leverage over how universities operate and what they teach. By ratcheting up the penalty to 21%, this latest attempt qualifies as an extreme shot across the bow, one likely not to be the last of its kind.