The "Higher Education Accountability Tax Act" increases the excise tax rate on private college and university investment income from 1.4 percent to 10 percent, adds further tax increases for institutions with rapidly increasing net prices, and expands the scope of institutions subject to the tax.
David Joyce
Representative
OH-14
The Higher Education Accountability Tax Act modifies the excise tax on investment income of private colleges and universities. It raises the excise tax rate from 1.4 percent to 10 percent and adds an additional tax increase for institutions with net prices that rise faster than the Consumer Price Index. The bill also expands the number of institutions subject to the tax by decreasing the asset threshold from $500,000 to $250,000. These modifications will be effective for taxable years starting after December 31, 2024.
College Endowment Tax Hike: New Bill Proposes 10% Rate, Broadens Scope
The "Higher Education Accountability Tax Act" significantly changes the tax rules for private colleges and universities, specifically targeting their investment income. Instead of the current 1.4% excise tax on net investment income, this bill proposes a jump to 10%, effective for tax years starting after December 31, 2024 (SEC. 2).
Taxing Times for Universities
The bill doesn't just raise the rate; it also expands the pool of institutions affected. Currently, the tax applies to colleges with assets of at least $500,000 per student. This bill lowers that threshold to $250,000 per student, pulling in smaller institutions (SEC. 2). It's like going from fishing with a net that only catches the big fish to one that scoops up the smaller ones, too.
The Price of Price Hikes
Here's where it gets even more interesting. The bill adds another layer of taxation for schools whose "net price" increases faster than the Consumer Price Index (CPI). "Net price," in this case, means the total cost of attendance (tuition, fees, room, and board) minus any grants and scholarships, averaged across all first-time, full-time undergrads (SEC. 2). If a school's net price goes up faster than general inflation, they get hit with an additional tax on top of the 10%. This is designed to create a direct financial incentive for colleges to keep costs down, and this part of the bill could have a significant impact on the choices universities make.
Real-World Ripple Effects
Let's say you run a small college with a modest endowment. Suddenly, you're facing a much higher tax bill on your investment returns. That's less money available for scholarships, faculty salaries, research, and campus improvements. Or consider a student choosing between two schools. If one school is aggressively controlling its net price to avoid the extra tax, it might become a more financially attractive option.
For the folks running the university, this is a big deal. The increased tax burden, in general, could be substantial. If you are running a university that is subject to this tax, you may see a direct impact on your operating budget. For the student, the impact depends on how the university responds. If the university passes on the cost, you could see increased tuition. If the university cuts costs, you could see less funding for programs.
The Bigger Picture
This bill is essentially trying to use the tax code to influence college pricing. It's a stick, not a carrot. While the goal of controlling college costs is widely shared, this approach could have unintended consequences. Smaller colleges, those with fewer resources, might be disproportionately affected. The bill also raises questions about how schools might try to manage their "net price" to avoid the extra tax, potentially leading to creative accounting or shifts in financial aid policies. It's worth keeping a close eye on how this plays out, as it could reshape the financial landscape of higher education.