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Use the Endowment Tax Revenue to Build Tomorrow’s Workforce

This post relies on data from a forthcoming report.

In the ongoing budget reconciliation process, House and Senate Republicans have each advanced plans to increase taxes on college and university endowments. The proposals come amid increasing Republican skepticism of American higher education: high costs, low returns, antisemitic sentiment, and administrative bloat are just some of the issues they’ve raised. Recent survey data underscores this trend: 50 percent of Republicans express little to no confidence in higher education, up from just 11 percent in 2015.

Much of the ire focuses on the nation’s wealthiest universities. The congressional proposals do not target all colleges; rather, the increased tax burden would fall on institutions with over $500,000 in assets per eligible student. Of America’s over 1,700 private non-profit institutions of higher education, the House plan would tax around 60 schools—under four percent. The Senate plan would tax roughly 30 schools, or less than two percent.

Endowment tax plans

The House plan proposes a four-tiered tax on investment income from university endowments, based on assets per student: 1.4 percent for endowments that have between $500,000 and $750,000 per student, seven percent between $750,000 and $1.25 million per student, 14 percent between $1.25 million and $2 million per student, and 21 percent above $2 million per student. The tax would apply to private non-profit institutions that are not religiously affiliated and have at least 500 tuition-paying students.

The Senate plan proposes lower rates on investment income across three tiers of assets: 1.4 percent for endowments that have between $500,000 and $750,000 per student, four percent between $750,000 and $2 million per student, and eight percent above $2 million per student. The tax would apply to all private non-profit institutions with over 3,000 tuition-paying students; this higher floor came after the Senate Parliamentarian nixed a carveout for religiously affiliated schools.

Additionally, both bills would modify the assets-per-student formula by counting only students who are eligible for federal financial aid. In effect, this would exclude student visa holders and other non-residents from the calculation. As a result, universities with a large number of international students would face greater tax liabilities.

Revenue estimates

Since the tax is based on an endowment’s return, we estimated the revenue generated under three growth scenarios: 6.8 percent, which was the 10-year average annual return for all university endowments surveyed by NACUBO; 9.1 percent, which was the 10-year average annual return for the highest-value endowment cohort (schools with over $5 billion in assets); and 11.2 percent, which was the average net return of all endowments in 2024. The table below reports projected tax revenues using these rates of return for the Senate and House proposals.

Whether the Senate proposal, the House proposal, or some mix of the two is ultimately passed into law, some of the country’s wealthiest colleges should expect to pay billions into the Treasury’s General Fund. The risk is that these revenues could disappear into the gaping maw of the federal budget, rather than being used for specific educational initiatives that would benefit the nation.

Workforce education

It would be a mistake to extract funds from academic institutions only to redirect them toward non-educational spending. Instead, we believe that this revenue should be a “pay-for” to support training programs that help overcome today’s labor shortages and build tomorrow’s workforce.

Currently, the US faces a shortage of skilled workers that will only worsen over time: for instance, the healthcare industry predicts a shortage of 100,000 critical workers across the next three years. The situation is even worse for construction trades, which risks a deficit of 500,000 workers in the coming years, and manufacturing, which anticipates a deficit of over two million workers by 2030.

This labor shortage poses far-reaching consequences for critical sectors of America’s economy. Fields like homebuilding, electrical trades, and semiconductor manufacturing—to provide just a few examples—are especially at risk, which affects everything from housing availability to public infrastructure to national security.

The Trump administration hopes to alleviate this shortage by creating one million new registered apprenticeships. By updating per-apprentice costs from 2022, we estimate that one million apprenticeships would have an annual cost of $1.12 billion. Based on CBO estimates, Workforce Pell Grants, another proposal to support workforce education, would have an average price tag of just $30 million over the next ten years. Taken together, these two workforce training programs would cost approximately $1.15 billion per year.

Our projections show that both House and Senate endowment tax plans—even under a pessimistic return scenario—could generate enough revenue to cover these workforce training initiatives. The real challenge isn’t finding funding. It’s whether Congress will have the wisdom to direct that funding toward workforce education programs that strengthen America’s economic future.

The post Use the Endowment Tax Revenue to Build Tomorrow’s Workforce appeared first on American Enterprise Institute – AEI.

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