Dartmouth and 48 other universities sent a letter to members of Congress urging them to revise a provision of the Tax Cuts and Job Act on March 7. The provision imposes a 1.4 percent excise tax on the net investment incomes of college and universities with more than 500 students and endowments greater than $500,000 per student. The tax could cost the College as much as $5 million annually. The College joins Harvard University, Princeton University and Yale University as one of only four Ivy League schools affected by the provision. Brown University, Columbia University, Cornell University and the University of Pennsylvania do not have endowments per student large enough to be affected by this provision, but Brown, Cornell and Penn signed the letter nonetheless.
The letter focuses on the potential effect that the tax could have on colleges’ ability to provide financial aid to low and middle-income students.
“This tax will not address the cost of college or student indebtedness, as some have tried to suggest,” the letter stated. “Instead, it will constrain the resources available to the very institutions that lead the nation in reducing, if not eliminating, the costs for low and middle income students.”
Bowdoin College senior vice president for communications and public affairs Scott Hood said that his institution signed the letter because nearly half of its endowment is earmarked for student financial aid, which means that this provision might reduce funding that makes college accessible for students.
While 49 universities signed the letter, College spokesperson Diana Lawrence noted in an email statement that only some will be affected by the tax.
“The letter was a group effort among college government relations officers,” Lawrence wrote. “It was signed not just by affected institutions (approximately 30 schools), but by college presidents whose schools were not directly impacted.”
Economics professor Bruce Sacerdote ’90 noted that the actual effect of this provision on college finances would be small.
“I have talked to a number of officials at the college and [small] is the word they have used … people calculate it to be in the $5 million range … it depends on how well the endowment does and realized versus unrealized gains,” he said.
According to Sacerdote, the Republicans who crafted the bill might have had an ideological motive to target wealthy institutions.
“There is sort of an ethical principle that it appears to me they’ve targeted a set of institutions, maybe ones that [they worry] are hotbeds of liberal thinking or something like that. To me, it feels mean-spirited and targeted, but I can’t say that it’s illegal or unconstitutional,” Sacerdote said.
Hood echoed this sentiment and referenced national polling data that indicates some Americans believe colleges and universities are harmful for American youth, adding that he disagrees with this belief.
Additionally, Sacerdote noted that the provision might be difficult to overturn, even with widespread support.
“Once implemented, taxes are hard to change … Harvard is not a very sympathetic type of institution. To say ‘We’ve got to stop taxing Harvard,’ it’s going to be hard for Congresspeople to stand and say that on the floor of the House or the Senate,” he said.
