In a letter published in today’s Washington Post, Arnold Ventures tax and fiscal policy fellow Scott Hodge addresses criticism of proposals to increase the tax on large university endowments.
Hodge argues those concerns are misplaced, pointing out that large university endowments “have become tax-free hedge funds,” often earning returns as high as 10% while spending less than 5% on scholarships and operating expenses. The rest is reinvested, compounding the advantage.
While retirees pay income tax rates of up to 37% on their 401(k) withdrawals, large endowments pay just 1.4% on their gains. Hodge calls for closing this gap in the tax code:
“That disparity is not fair. The needs of retirees are no less important than the needs of students and faculty. Though many of the policies aimed at universities these days might be gratuitous, there is no justification for not taxing the investment gains of large university endowments at rates comparable to what a retiree would pay.”
Our plan for fiscally responsible tax reform calls for ending preferential treatment for elite university endowments, alongside simplifying student loan repayment and reforming Grad PLUS loans to ensure more fairness across the higher education system.
