Some Maryland colleges would have to pay taxes on investment earnings under the tax legislation proposed by Republicans in the U.S. House of Representatives.
The colleges warn that the taxes could lower the amount of money they have to spend on financial aid and student support.
“Private institutions have to rely on their endowment for their viability,” said Tina Bjarekull, president of the Maryland Independent College and University Association, which represents Maryland’s nonprofit private colleges. “No one is going to hold them up if they become financially insolvent.”
Under the proposed legislation, which is subject to change as the House Ways and Means Committee marks up the bill this week, investment earnings would be taxed at a rate of 1.4 percent. The excise tax would apply to schools with more than 500 students and an endowment value of more than $100,000 per student.
Currently, that criteria would apply to Johns Hopkins University, Goucher College and Washington College. St. John’s College currently has enrollment under 500, so the law would not apply to it. But if their enrollment goes above 500, which it has in the past, they could be taxed as well.
“At this point, the information in the proposed tax reform bill is not detailed enough for us to fully assess the impact on cash flow to Washington College. We are working with our investment adviser and they are closely monitoring developments with and for us,” says Rahel Rosner, Washington College’s vice president for finance and administration. “But an excise tax is only one way in which these proposed changes would hurt Washington College, its students, and employees.”
The school is worried that the plan to double the standard deduction could also lead to less contributions to the college.
Goucher estimated that under the excise tax proposal, it could lose $500,000, Bjarekull said.
These endowment earnings are critical for private schools because they do not receive support from the state, she added.
“If you look at how much money the state of Maryland gives to the University of Maryland, College Park every year, it exceeds $460 million,” she said. “It would take an endowment of $9.3 billion to produce that kind of money.”
In addition to the excise tax on investments, the bill would also tax the universities for unrelated business income and private activity bonds as lawmakers seek to pay for a proposed cut in the corporate tax rate from 35 percent to 20 percent.
The private activity bonds are a primary way for the colleges to raise money for capital construction projects. Currently, they are tax-free for investors, but that exemption would be removed under the bill.
The Maryland Independent College and University Association plans on working with its affiliated associations in other states to fight the provisions in the tax legislation, targeting Republicans in other areas of the country.
Public and private colleges are also concerned about a proposal in the legislation that would not allow tax filers to deduct student loan interest payments on their returns.
“When people are focusing on student debt, we don’t want policies that make that harder for students,” Bjarekull said. “We really have to make that easier for students.”