On March 7, Chancellor Zeppos joined leaders from 48 other universities and colleges in signing a letter asking Congress to repeal or amend a new tax on university endowments passed in December. Zeppos released an earlier statement in December, calling the tax on endowments a “fundamentally bad public policy.”
The letter, addressed to Senate and House leaders such as Mitch McConnell, Charles Schumer, Paul Ryan, Nancy Pelosi among others, called the tax “damaging” and “misguided” in that it would hurt an institution’s ability to fund research, financial aid and community support.
“The net investment income tax will impede our efforts to help students, improve education, expand the boundaries of knowledge, advance technological innovation, and enhance health and well-being,” the letter read. “Each year we spend funds from our endowments to support this critical work. Endowments are not kept in reserve to be drawn on only occasionally or on a rainy day. In fact, across our institutions, endowments support a significant and growing portion of our operations; for many, endowments provide almost half of annual revenues.”
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The tax is a 1.4 percent excise tax based on the investment income of private universities and colleges. It applies to institutions with at least 500 full time students with assets valued at $500,000 per student. The tax will impact an estimated 35 institutions. While Vanderbilt is not one of the 35, many of its peer institutions are, and Zeppos in his earlier statement said it would hurt affected institutions’ ability to provide financial aid to students.
“Students are the leading beneficiary of these resources with each of us committed to significant efforts to enhance affordability,” the letter read. “Yet this tax will not address the cost of college or student indebtedness, as some have tried to suggest. Instead, it will constrain the resources available to the very institutions that lead the nation in reducing, if not eliminating, the costs for low- and middle-income students, and will impede the efforts of other institutions striving to grow their endowments for this very purpose.”
Additionally, the letter expressed concern that the tax sets a precedent which can be further applied to charitable institutions. In the past, excise taxes applied to non-operating foundations, but the new policy taxes colleges and universities, which have significant operations, which they say could be extended to threaten all charities. The letter closes by urging Congress to revisit the policy and make changes.
“Taxing college and university resources will reduce not just these resources, but also the impact of our institutions, and the impact of our students. We will each have less to give in aid, less for research and less to support public engagement in the lives of our communities.”
