Zhu Ziyu/VCG via AP
A view of the Harvard University campus on May 24, 2025, in Cambridge, Massachusetts
The Republicans behind Trump’s “one big beautiful bill” have propagated a grossly misleading perception of the legislation’s sharply increased tax on university endowments. Rep. Jason Smith (R-MO), chair of the House Ways and Means Committee, says that the bill “subject[s] the largest endowments to the corporate tax rate.” True, at 21 percent, the top rates on corporations and university endowments would be nominally the same, but that is a false equivalence, as corporations have access to deductions that university endowments don’t.
Corporations don’t pay an effective rate of 21 percent; they pay considerably less. According to a report by the U.S. Government Accountability Office, after the 2017 Trump tax legislation cut the top nominal rate on corporate income from 35 percent to 21 percent, the effective tax rate—the percentage of income companies paid after tax breaks—fell on average to 9 percent in 2018. In contrast, the current House bill wouldn’t allow universities any significant breaks from the tax on endowment income.
The endowment tax rate in the House bill is graduated according to the size of a university’s endowment, relative to the number of U.S. students (foreign students don’t count). Universities with endowments per student of $2 million or more are subject to the 21 percent rate. (Full disclosure: I teach at one of those institutions, Princeton University.) The rate is 14 percent for endowments of $1.25 million to $2 million per student; 7 percent for endowments of $750,000 to $1.25 million per student; and 1.4 percent for endowments of $500,000 to $750,000 per student.
But even at the lower levels, the Trump endowment tax would still impose a higher effective tax on universities subject to the tax than on a business with the same overall income and expenses. To be equivalent to the corporate income tax, the tax on universities would have to be levied on their net income. Universities, however, typically have little or no net income, because they use the income from their endowment to make up for operating losses (including student aid) and to pay for capital investments (which this legislation wouldn’t allow them to depreciate).
Suppose the House bill proposed a new tax that was structured the same way as the tax on university endowments but applied generally to for-profit businesses and nonprofit corporations such as health care systems, many of which have large capital reserves. All corporations would then be taxed on their income from capital reserves but not allowed to deduct any losses from operations. That proposed tax would be denounced, especially by conservatives, as outrageously unfair; some would undoubtedly call it unconstitutional.
Nonetheless, Republicans consider it fair to tax endowed universities without taking their operating losses into account. This raises a critical question. Legislation must have a rational public purpose for treating similarly situated individuals and institutions differently. What exactly is the purpose of treating university endowments more unfavorably than other forms of wealth, in both for-profit and nonprofit institutions?
Justifying the bill, Chairman Smith says that “it finally holds elite, woke universities and nonprofits accountable.” (The bill also imposes an endowment tax on charitable foundations, though at lower rates than universities.) Smith’s tendentious description of universities and foundations as “woke” betrays the intent to impose a viewpoint-based punishment on private institutions, the very thing that the First Amendment forbids the government from doing.
THAT’S NOT THE ONLY WAY in which the provision could raise constitutional challenges. The bill excludes religiously affiliated colleges and universities such as Notre Dame from a tax that it imposes on secular institutions. The First Amendment’s guarantee of free exercise of religion is also a guarantee of the right not to exercise a religious preference. The government should not be able to say to a prospective donor to higher education, “The income from your donation will remain tax-exempt if you contribute to a religiously affiliated college but not if you contribute to a secular college, even though the latter is also operated on a charitable, nonprofit basis.”
The nation’s oldest elite universities, such as Harvard and Princeton, originally did have religious affiliations but ended them long ago. If a university or college with a religious affiliation today wanted to follow their example, the government under the House bill would be imposing a financial penalty on the choice to disaffiliate. The tax violates the principle that the government should be neutral in matters of religion.
The endowment tax will reduce the incentive to donate to universities and thereby reduce their independence from the state.
The endowment tax conflicts with another foundational premise in the American system of higher education, a premise that conservatives used to celebrate. America’s decentralized, pluralistic mix of colleges and universities has limited the control that the federal government exercises over them. By making nonprofit institutions tax-exempt, the government has given donors an incentive to build up independent, private institutions and enabled American higher education to become a global leader, a robust bulwark of free speech, and a critical source of innovation, economic growth, and social mobility.
By taxing a significant part of the return from donations, however, the endowment tax will do the reverse. It will reduce the incentive to donate to universities and thereby reduce their independence from the state.
To be clear, although Trump has threatened to deny Harvard its tax-exempt status, the legislation does not eliminate the tax deductibility of gifts to universities. But the endowment tax may well deter wealthy individuals from doing what their predecessors did: making large gifts endowing new private universities or new schools within existing ones. It’s just the sort of policy that conservatives would denounce in other contexts.
THE FEDERAL GOVERNMENT HAS a long history of supporting universities, from the land grants of the 19th century to later programs of research grants and financial aid. But it has traditionally provided such support without taking over the institutions. Until the MAGA era, Congress never sought to subtract resources from higher education and to use the leverage of federal grants to subject universities to government control of their internal affairs, as the Trump administration has done most conspicuously in the demands it has made of Harvard and Columbia. Now, summoning populist anger against privileged elites, Republicans are proposing to subtract educational resources and to subject universities to federal control.
The endowed universities are in a tough position, with little expectation of public sympathy. No one in America likes elites; even our elites are anti-elitist. But make no mistake: The attack on universities is not coming from a party that is trying to reduce the power of concentrated wealth or that would support a general wealth tax.
Republicans have unleashed wealth from all political restraints. In an article about how “The Ultrarich Have Reshaped Presidential Elections,” election law expert Richard L. Hasen points out that the top six donors in 2024 each contributed more than $100 million, and all that money—$291.5 million from Elon Musk, $197 million from Timothy Mellon, $148.3 million from Miriam Adelson, $143.5 million from Richard and Elizabeth Uihlein, $108.4 million from Ken Griffin, and $101.1 million from Jeffrey and Janine Yass—went to Republican candidates, except for a single $1,500 Democratic contribution from the Yasses.
The same legislation that taxes university endowments more heavily reduces taxes on the rich and even includes new tax breaks for corporations shifting profits abroad. So why would a party supported by the ultra-rich, and bending over backwards to benefit the ultra-rich, want to tax wealth, in the specific form of university endowments? Because, in J.D. Vance’s words, “Universities are the enemy.”
If Trump’s non-elite followers think they’re going to benefit educationally from Trump’s big beautiful bill, they’re going to be disappointed. As David Dayen has written (“Republicans Opt to Make Education an Upper-Class Privilege”), the House bill would cut federal spending on student loans by up to $330 billion over a decade. Perhaps even more important, it would turn federal loans into “an expensive, punitive, and downright dangerous financial vehicle.” The new repayment provisions are harsh.
When Republicans originally introduced a small tax on university endowments in 2017, some suggested it was aimed at prompting the universities to address problems of college affordability. That never made much sense, but the updated and expanded tax will have even more perverse effects. Imposing hundreds of millions of dollars in taxes on universities and cutting federal student loans, along with reduced funds for research, will make universities more reliant on tuition income and less likely to accept students who need financial aid.
The endowments of the wealthy universities are a target of Trump precisely because the endowments put those institutions in the strongest position to resist the political demands that Trump is making of all higher education. The endowment tax is an example of a more general pattern: the use of policies calculated to appeal to class resentment but objectively damaging to ordinary people’s economic interests and the values of a free society. This is how populist plutocracy works. Higher education is just collateral damage in the right-wing quest for power.
