Hess: Tax reform proposal would harm college students

Should the tax on private college endowments become law, Wabash will be forced to reduce scholarships, cut its workforce, or reduce wages.

Gregory Hess

The Tax Reform and Job Acts bills crafted by the House and Senate in recent weeks — largely in small, closed-door meetings — contain new taxes that seriously jeopardize the quality of education that colleges like Wabash College provide for their students.

The original bills would have imposed a 1.4 percent excise tax on college and university endowment returns. While there are proposed amendments that would limit that tax to schools with the highest per-student endowments, any tax like this without consideration of how funds are being used is unwise and bad policy. Recent amendments aim to target the multi-billion dollar endowments of the Ivy League schools, but four Indiana colleges would suffer from the tax recommended in the House: Wabash, DePauw, Earlham, and Notre Dame.

At the outset, tax reform was designed to help working middle class families; to simplify the tax system; and to add no new taxes. What’s being voted on in Washington next week deviates from those goals in substantial ways.

Consider that at Wabash, 40 percent of our students are first generation college students and about one-third are eligible for federal Pell Grants based on family income. Our $340 million endowment works for our students, over 70 percent of whom come from Indiana. Wabash’s endowment provided returns that funded $19 million in scholarships and need-based financial aid to our students. Should the tax on private college endowments become law, Wabash will be forced to reduce scholarships, cut its workforce, or reduce wages across the board. 

If the proposal is approved by Congress, Wabash will pay a tax of about $350,000 per year. To put it in perspective, that figure is nearly 1 percent of our entire operating budget; it’s 2 percent of our student scholarship budget; and it’s equal to a 1.5 percent wage reduction across our faculty and staff.

The proposed tax bill may also tax tuition benefits granted to employees of colleges and universities; eliminate students’ ability to deduct interest paid on student loans; limit benefits to tax payers for their charitable contributions to our schools, among other sweeping changes.

At Wabash, our men graduate in four years at rates that are nearly double our state’s flagship universities. We have no million dollar coaches or private planes, and we don’t hide our assets in offshore tax havens. We manage our endowment with a singular focus on advancing our educational mission.

For 185 years, Wabash College has provided its students with unparalleled opportunities, regardless of their financial circumstances. Taxing our endowment returns only hurts our students.

Hess is president of Wabash College.