As Republicans in Congress move forward with tax reform legislation, administrators at Middlebury and at colleges across the country have expressed concerns about several provisions that could significantly alter the federal government’s role in higher education.
Most significant is a proposal to impose a 1.4 percent excise tax on the investment income of private schools with endowments worth over $250,000 per full-time student. Middlebury enrolls over 2,500 undergraduate students, with an endowment of $1.1 billion — or about $440,000 per student. It therefore ranks among the 60 to 70 colleges that would face new tax burdens if the legislation passes.
Republican leaders in the House introduced their tax reform bill on Nov. 2; the Senate rolled out its own version on Nov. 9. The endowment tax exists in both bills, along with other provisions that could impact alumni donations, student loans and tuition discounts for college employees.
“There’s a lot in this bill that attacks higher ed,” said David Provost, the college’s treasurer. “It’s clear that they’re coming after us.”
Bill Burger, the college’s spokesman, articulated the college’s opposition to the endowment tax.
“Middlebury’s endowment, like the endowments of other schools, sustain generous financial aid programs that make a high-quality education available to admitted students regardless of their ability to pay,” he said. “The perverse consequence of an endowment tax would be to shift the burden of the cost of higher education to the families that are least able to afford it.”
Provost estimates that a tax of 1.4 percent could have reduced the college’s investment income by up to $600,000 in the past year.
“Our average financial aid package is $45,000,” he said. “That’s 12 or 13 students where we wouldn’t have money to give financial aid.”
Beyond this immediate impact, the college is concerned that passing an endowment tax could embolden Congress to levy additional taxes against private colleges in the future, or to simply raise the endowment tax rate far above 1.4 percent.
“If it starts at 1.4 percent, what’s to say that they won’t make it 5 or 10 percent?” Provost said. “Once it’s in place, where does it stop?”
The endowment tax is not the only provision that has drawn the college’s attention. Both the House and Senate plans call for a significant increase in taxpayers’ standard deduction, which would reduce the incentive to make tax-deductible charitable contributions, such as donations to Middlebury.
“We have a high participation rate of alumni that give,” Provost said. While this provision would not severely harm the college’s finances, “in the context of keeping alumni engaged, it could sting.”
Next, the House bill would eliminate the student loan interest deduction, which currently allows student borrowers to reduce their yearly tax burden by up to $2,500. The Senate bill leaves this deduction intact.
Finally, the House bill would repeal tax breaks for employer-funded educational assistance. Currently, faculty and staff can receive tax-exempt tuition assistance from the college, helping them, or a dependent, take college classes or pursue a degree. This provision, like the student loan deductions, would not impact Middlebury as an institution, but could negatively impact college employees who benefit from the deduction.
Provost, who spent the past weekend at Swarthmore College discussing the tax plan with financial officers from other small liberal arts colleges, said that Middlebury’s senior administrators would meet this week to develop an official response to the legislation. Options could include releasing a joint statement of opposition alongside other selective liberal arts colleges.
Republicans in Congress, anxious for a legislative victory, hope to pass tax reform before the mid-December recess. The House could vote on its bill this week, and is expected to pass it; the Senate is still finalizing details on its own plan, which will likely encounter more opposition. If both bills pass, GOP leaders from both houses would then need to collaborate on a final bill to send to President Trump’s desk.
“I think it’s fair to say that higher education’s view of these tax proposals is well understood in the halls of Congress,” Burger said. “It’s sad that this issue has become so politicized. We hope that the Senate, in particular, will be a place where sound public policy can emerge on this issue.”
