US endowment tax ‘could hit 80 universities by 2031’

Economics scholar estimates impact of new excise tax on university endowments 

January 12, 2018
US Congress
Source: iStock

The number of US colleges that would be subject to a new excise tax on university endowments could triple within 15 years, according to preliminary estimates.

Phillip Levine, Katharine Coman and A. Barton Hepburn professor of economics at Wellesley College, in Massachusetts, calculated that 23 universities would have been subject to the new 1.4 per cent excise tax on endowments in 2015-16 had it been in place in that year, according to Inside Higher Ed.

The estimate was based on data on institutions’ endowment values from the Integrated Postsecondary Education Data System.

But Professor Levine estimated that the number of institutions subject to the endowment tax could grow to between 31 and 41 in five years, 41 and 61 in 10 years, and 55 and 80 in 15 years, based on an assumed rate of endowment growth of between 4 and 8 per cent.

The annual growth rate for the country’s top 100 university endowments measured on a per student basis between 2002-03 and 2015-16 was between 5 and 6 per cent annually, according to Professor Levine.

Last month, Donald Trump, the US president, signed into law the Republican tax bill, which includes an annual 1.4 per cent excise tax on private university endowments valued at $500,000 (£370,000) or more per full-time student. It applies only to institutions that have at least 500 students.

For his calculation, Professor Levine assumed that universities’ entire endowment values would be taxed and student enrolment figures would remain steady. He also counted each part-time student as half of a full-time student when calculating full-time equivalent students.

However, it is not yet clear which institutional assets will be counted towards the tax and how universities will be required to calculate full-time equivalent students.

ellie.bothwell@timeshighereducation.com

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