Rich School Endowments Aren’t Taxed. Washington Is Out to Change That

A threat that U.S. private colleges and universities have dreaded for years just got closer to reality: Republicans in Congress want to tax rich endowments. The sweeping 400-page tax bill unveiled on Nov. 2 includes a 1.4 percent levy on private schools’ investment income. It’s one of many ways the bill is trying to raise money to partially pay for slashing corporate rates and other cuts. The tax could apply to private institutions with endowments of more than $250,000 per full-time student, according to a later amendment to the bill. That group includes about 70 colleges and universities.

Regardless of the final shape of the tax—or even whether it passes—it’s clear that Washington has its eyes on the pile of money that colleges have amassed. About 800 endowments together hold more than $500 billion, led by Harvard with $37.1 billion. Thanks to a strong market, many schools are richer than ever, and they don’t pay taxes on their investment earnings. Their funds have become major players in the financial markets, with investments in hedge funds, venture capital, and real estate.