This week, Arnold Ventures tax and fiscal policy fellow Scott Hodge joined radio stations across the country to discuss his new policy brief on how taxing large university endowments can make the tax code fairer and help advance fiscally responsible tax reform.
Listeners in Louisiana, Wisconsin, New York, California and across the nation heard from Hodge about how Congress should consider taxing university endowments at the same rate other investment funds are taxed.
“A lot of these large university endowments have essentially become tax-exempt hedge funds,” said Hodge on the Frank Mottek Show.
Right now, the largest universities pay a 1.4% excise tax on investment income, drastically lower than the 21% tax rate corporations pay on investment income. Congress could close this loophole and raise $70 billion in the process.
“They get tax-deductible donations from supporters and alumni. They invest those dollars in these stock markets, oftentimes in things like private equity and venture capital. They earn tens of millions of dollars on those investments and pay zero income tax on those profits,” Hodge explained on the Lars Larson Show. “And so really what they are is they’re double-dipping by avoiding tax, by not paying taxes on the tax-deductible donations, and then they don’t pay tax on the investment income.”
This is one of 20 priority reforms that Arnold Ventures has proposed for fiscally responsible tax reform– along with simplifying student loan repayment plans and reforming Grad PLUS loans.
University endowments have grown by more than 70% in recent years and now total $871 billion across 654 U.S. institutions. Meanwhile, many universities borrow through tax-exempt municipal bonds at rates below 5%. This low-cost debt doesn’t improve educational quality and has been linked by independent research to rising college costs.
“The bottom line is that America’s universities have become big business, big tax-exempt businesses. And it’s time that we start thinking a little bit differently about how we treat them in the tax code,” said Hodge on the Vikki McKenna Show.
Read Arnold Ventures’ full report on fiscally responsible tax reform here.
