Republicans Are Floating Plans To Raise the Endowment Tax. Here’s What You Need To Know.

Rep. Mike V. Lawler (R-N.Y.), a loyal ally of President Donald Trump, became the latest Republican lawmaker to introduce an endowment tax on Friday, proposing an 8.6 percentage point tax hike for Harvard and other wealthy colleges and universities.

Though the proposition barely made headlines, buried under massive research funding cuts to the National Institute of Health and a federal hiring freeze, an endowment tax increase of that scale could hurt Harvard more than any of the previous financial penalties combined.

Lawler’s bill is one of two endowment tax bills introduced since Congress went into session Jan. 3. They build on previous threats from Trump and the House Committee on Education and the Workforce to drastically raise the current 1.4 percent endowment tax.

Harvard has lobbied hard against endowment tax proposals on both the federal and state level in recent years. Now, with a Republican trifecta in Washington, widespread political support for stripping universities of their funding, and a 2017 endowment tax as a road map, an endowment tax hike could be passed with remarkable speed.

University spokesperson Jason A. Newton wrote in a statement that “raising the endowment tax would inflict harm directly on our students and faculty – it would diminish our institutional capacity to support financial aid and research, and it would impair our ability to hire and retain faculty.”

‘Deeply Concerned’

Harvard’s endowment — the largest in higher education — has long been a target of conservative lawmakers, but recent developments signal a growing push to significantly increase taxes on university investments.

Before being selected as Trump’s running mate, then-Senator J.D. Vance (R-Ohio) introduced a bill in Dec. 2023 that proposed raising the tax on endowments from 1.4 percent to 35 percent for private educational institutions whose assets exceeded $10 billion.

Vance said the bill would strip funds used for “DEI and woke insanity.” But at Harvard, the tax would directly affect funding for financial aid.

“Over half our undergraduates received aid, and those students paid less than $16,000 a year on average to attend,” Newton wrote. “An increase in the endowment tax would divert those funds for other purposes, making college less affordable, not more.”

The current endowment tax rate of 1.4 percent was established under the Tax Cuts and Jobs Act of 2017, enacted by a Republican-controlled House and Senate during the first Trump administration.

Prior to 2017, private universities were exempt from such federal income taxes, allowing them to reinvest all endowment returns, funding programs like financial aid, faculty hiring, and research. The TCJA marked the first time that a federal excise tax was imposed on the investment income of large private university endowments.

When the 1.4 percent tax was passed in 2017, then-Harvard President Drew Gilpin Faust said she was “deeply concerned” it would hurt research and student support services.

“The provision will constrain the resources that enable us to provide the financial aid that makes college more affordable and accessible and to undertake the inquiries that yield discoveries, cures, innovation and economic growth,” Faust wrote in a 2017 statement to The Crimson.

With the act set to expire on Dec. 31 and Republicans expected to preserve and extend its policies, it is almost certain a new endowment tax policy will be introduced by conservative legislators on Capitol Hill this calendar year.

When it is — if the proposals trickling in from Republican lawmakers over the past few years are any indication — the current 1.4 percent rate will look like pennies. With proposals ranging from 10 percent to 35 percent, the Republican push for an endowment tax hike marks a dramatic escalation in the financial attacks on private universities like Harvard.

Significant Cuts

Even at the low end, if Harvard gets hit with a 10 percent tax rate for the last fiscal year, during which it generated $5.1 billion in endowment returns, the University would pay approximately $510 million in taxes to the federal government — far more than the $71.5 million it would pay under the 2017 law.

Should such a law pass, Harvard would be forced to pay 8 percent of its 2024 annual operating budget in taxes.

And if Harvard’s endowment maintained its 9.54 percent average annual return since 2014, the University would pay a total of $7.56 billion in taxes to the federal government by 2034 under a 10 percent tax rate.

Should the tax rate increase to 35 percent, as Vance proposed, Harvard would pay $1.79 billion in taxes for fiscal year 2024 — 27.9 percent of its annual operating revenue.

Because around 80 percent of Harvard’s endowment is restricted — meaning it cannot be reallocated by University officials — the tax would also disproportionately impact the programs funded by unrestricted income: primarily financial aid, research, faculty hiring, and other critical operations like building maintenance.

In the last fiscal year, the University spent more than $749 million in financial aid, including $250 million for undergraduates.

‘Billions and Billions of Dollars’

Unlike other Republican plans to punish Harvard financially for what they see as negligence in the face of antisemitism — that range from Title VI investigations to eliminating accreditation all together — an endowment tax is already a proven strategy.

It also does not require complex legislation.

Because the current tax rate is codified in the Internal Revenue Code of 1986, a hike in the endowment tax rate to 10 percent requires a one-sentence bill that states: “Section 4968(a) of the Internal Revenue Code of 1986 is amended by striking ‘1.4 percent’ and inserting 10 percent’.”

Excluding the proposals by both Vance and Lawler, at least three other Republican legislators have introduced bills that tax endowment earnings in the last two years. Now, those proposals also have support from the White House.

In a 2023 campaign video, President Donald Trump said he would start a new online free university with the profits from taxing private University endowments, specifically calling out protests at Harvard.

“Americans have been horrified to see students and faculty at Harvard and other once-respected universities expressing support for the savages and jihadists who attacked Israel,” Trump said.

“We will take the billions and billions of dollars that we will collect by taxing, fining, and suing excessively large private university endowments, and we will then use that money to endow a new institution called the American Academy,” Trump added.

While Trump can exercise executive authority to control federal agencies and departments — power he has used to freeze federal hiring and research funding — altering the federal tax code requires legislative action by Congress.

But, according to NYU finance professor David L. Yermack ’85, support from the Trump administration would likely accelerate efforts to pass an endowment tax.

“You have a new government that really hates elite universities,” said Yermack, a former Crimson managing editor.

“It wouldn’t surprise me if they start looking for ways to tax Ivy League schools, not just through the endowment, but every which way you could think of,” he added.

—Staff writer Avani B. Rai can be reached at avani.rai@thecrimson.com. Follow her on X @avaniiiirai.

—Staff writer Saketh Sundar can be reached at saketh.sundar@thecrimson.com. Follow him on X @saketh_sundar.