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Massachusetts Looks at Nation's First Endowment Tax

NAICU Washington Update

May 13, 2008

Desperate to fill a budget gap, the Massachusetts legislature is considering a college endowment tax. The proposal, believed to be unprecedented in the United States, would apply to institutions with endowments larger than $1 billion. While the first $1 billion of an endowment would be exempt, anything above that would be subject to a 2.5 percent levy.

The Massachusetts House of Representatives did not approve the measure, but did vote to ask the state's Department of Revenue to study the proposal. The proposal comes at a time when many states are struggling to balance budgets, and endowment spending patterns have come under intense scrutiny from the Senate Finance Committee.

"There are only 45 private colleges and universities in the United States with endowments greater than $1 billion, while the remaining 1,555 independent institutions have a median endowment of just $14 million," said NAICU President David L. Warren. "Nevertheless, government proposals that undermine the rights of donors as well as the financial independence of any institution and its students are of grave concern to all of private higher education."

In recent days, the Massachusetts measure has come under attack by the news media. The Boston Globe, in an editorial titled "How to strangle an economy," argued that a "tax of this magnitude on the state's universities and colleges would be economic suicide" and is an "ill-conceived money grab that ignores how vital higher education is to the local economy." A Berkshire Eagle editorial ("Dubious endowment plan") noted the negative effect the tax would have on donors' motivation to give, and that in cases like Williams College, institutions already contribute to public coffers and serve their communities in many ways.

Also making the opinion pages last week was the Senate Finance Committee's proposal to force colleges and universities to spend 5 percent of their endowment a year. Wall Street Journal columnist Collin Levy ("The Taxman Cometh") noted that the requirement "would cause serious problems, requiring annual spending at the expense of a school's ability to save for bigger undertakings."

Contact

• Karin Johns
  karin@naicu.edu