While many individuals will get a tax break, if the Republicans’ federal tax change plan becomes law, certain colleges and universities will have to pay an excise tax on endowment income.
Three members of the Five College Consortium — Amherst College, Smith College and Mount Holyoke College — have cited this reason, among others, for their opposition to the bill.
UMass opposes the bill although it has yet to release a statement about the proposal and, as a public university, is exempt from the excise tax on endowment income.
The Tax Cuts and Jobs Act of 2017, which the House passed on Nov. 16, contains a provision that would establish a 1.4 percent tax on private colleges’ and universities’ endowments. The tax only applies to schools with at least 500 full-time students and an endowment with a sum greater than $250,000 for each full-time student.
Endowments –– large pools of donated money, sometimes in the billions of dollars –– are used to carry out a school’s mission, pay for operating expenses or provide financial aid, for example.
Amherst College President Biddy Martin, in a letter to students, faculty and staff, said the college’s financial aid system benefits 56 percent of Amherst College students, at an average of $50,000 annually per aided student. That system, she said, is a result of Amherst College’s large endowment.
“Amherst’s endowment allows the College to avoid a heavy reliance on tuition revenue and therefore to admit the most promising students regardless of financial considerations,” Martin said.
The endowment was valued at $2.032 billion as of June 30, according to the college’s website.
The letter, sent out on Nov. 7, detailed the college’s objections to the tax bill, and the harm that the endowment tax could cause the college and its students.
In addition to possibly damaging the school’s financial aid program, the endowment tax threatens Amherst College’s financial model: Fifty percent of the school’s operating budget is from its endowment.
Martin wrote that the school’s estimates suggest that the financial impact of the proposed endowment tax “could be in the tens of millions of dollars over the next decade.”
However, Amherst College spokeswoman Sandy Genelius said that the school will do all it can to ensure students are not hurt if the tax plan is signed into law.
“Our focus is on the students. Fifty-six percent of students receive financial aid. We only do grants. We don’t do loans,” Genelius said.
Genelius also noted that the Senate has yet to vote on the bill, and that alterations could be made to the tax-system overhaul. The original threshold for schools required to pay the endowment tax was an endowment sum of more than $100,000 per full-time student, and it was later raised to $250,000. Still, Amherst College is imploring people to oppose the plan.
“We’re reaching out to people we can, and we’re asking other people to reach out, call their legislators,” Genelius said. “Amherst College is going to be tracking it closely.”