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GOP college endowment tax won't just hurt the Ivy League

University of Notre Dame
Alfredo Sosa/The Christian Science Monitor | Getty Images
University of Notre Dame

The Republican Senate tax plan includes a 1.4 percent excise tax on universities with endowments larger than $250,000 per full-time student.

According to data from the Chronicle of Higher Education, 61 colleges and universities fit into this category. Roughly 41 percent are located in red states.

At first glance, taxing wealthy colleges may be perceived as an attempt to dethrone the Ivy League universities seen as bastions of coastal liberal elitism. But many conservatives are arguing that this provision in the Republican tax plan would not be in the best interest of their constituents.

According to the most recent data available from the National Center for Education Statistics, 50 percent of the colleges with the 20 largest endowments are located in states that went for Trump in the 2016 election.

Hesburgh Library at Notre Dame in South Bend, Indiana.
Michael Hickey | Getty Images
Hesburgh Library at Notre Dame in South Bend, Indiana.

Under the Republican Tax plan, schools like Notre Dame and Emory University would have the income on their endowments taxed. Even the endowments of schools like Earlham College in Richmond, Indiana — where nearly one-third of students receive Pell Grants — would be taxed.

However, as Lewis McCrary, executive editor of the American Conservative points out to The Washington Post, many wealthy and elite institutions will not be impacted by this tax because of the way it has been formulated.

Georgetown, for example, "only draws 3.1 percent of its students from families in the bottom quintile of family incomes — yet its $1.5 billion endowment, supporting 7,453 undergraduates who are largely children of the wealthy, is not large enough to be taxed under the flawed formula of the pending legislation," writes McCrary.

Jennifer Rubin author of the conservative "Right Turn" blog notes, "The bottom line here is that Congress identified a legitimate issue, but not a responsible process for addressing it."

Michael R. Strain, director of economic policy studies at the conservative American Enterprise Institute, argues that the excise tax on college endowments is misguided. "Elite universities use endowments in part to relieve students and their families of the burden of paying tuition," he writes for Bloomberg. "Axing endowment earnings would make these efforts more difficult, and would probably raise tuition for students from families that would struggle to pay it."

This tax would also hurt American research efforts, says Strain. "Endowment earnings also support the world-class research that make U.S. universities the envy of the world, attracting talent from across the globe," he explains.

"Simply living near college graduates raises the wages of less-educated workers. Companies located near research universities generate more patents and spend more on research and development. Cities with more human capital are better able to adapt to economic shocks. Why tax the income that helps makes this possible?"

Strain posits that the reason this provision is included in the GOP tax proposal is growing resentment of universities perceived as liberal and elitist.

"It is beyond unseemly to tax a few dozen institutions in part because you don't like their politics," he says. "It is also shortsighted."

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