Stanford would get hit with an estimated $231 million tax increase if the Trump tax bill becomes law — reducing the money available to pay employees and provide financial aid to students.
House Republicans passed a bill on May 22 that would raise taxes on the funds generated by the largest university endowments from 1.4% to 21%. The bill is now being considered by the Senate.
The tax would apply to gains on Stanford’s $37.6 billion fund that pays for financial aid, student services, employee salaries, libraries and sports. Stanford reported $1.2 billion in net gains in fiscal year 2022, according to its most recent return filed with the IRS.
Stanford would seen its tax payment go from an estimated $17 million to an estimated $248 million under the proposed bill — an increase of $231 million a year.
Universities like Stanford will consider shifting endowment dollars into longer-term investments that don’t generate realized income until a future date, said Allison Koester, a business professor at Georgetown University.
Stanford doesn’t engage with the media regarding investment strategy, university spokeswoman Luisa Rapport said in an email Wednesday.
“The endowment tax being proposed will directly reduce financial aid for undergraduates, support for faculty and graduate students, and funding for research programs. The result will be to weaken American universities and diminish the nation’s capacity for leading research and innovation,” Rapport said.
Stanford has already frozen hiring in response to changes in the federal government.
President Jonathan Levin and Provost Jenny Martinez said in February that cuts at the National Institutes of Health combined with the proposed endowment tax are “very significant risks to the university.”
Stanford’s spending
Stanford spends about 5% of the total value of the endowment each year, according to a fact sheet from the university.
That includes $1.9 billion budgeted for the current fiscal year, paying for 21% of total university expenses.
The endowment has been in place since 1885 when founder Leland Stanford gave about $20 million to establish the university.
In 2017, Congress passed the 1.4% tax on wealthy colleges’ investment earnings. It applies to colleges with at least 500 tuition-paying students and endowments worth at least $500,000 per full-time student. Before that, colleges weren’t taxed on their endowment income.
Endowment or hedge fund?
The tax reflected a sentiment that some colleges were too concerned with generating investment income, with huge endowments that operate like hedge funds. Critics pointed to colleges like Harvard, Yale and Stanford, with tens of billions of dollars.
Harvard and dozens of other schools opposed the tax, calling it “an unprecedented and damaging tax on the charitable resources” of universities.
About two-thirds of Stanford’s student financial aid comes from the endowment, allowing 88% of students to graduate debt free, the university said.
New strategies
The Wall Street Journal spoke to officials at eight private universities and colleges about their thinking on investment strategies in light of the proposed bill. They largely said they would begin using a new lens of tax-efficiency as they think about how to direct — and redirect — their billions.
Under the new tax bill, universities might pull back from strategies that regularly generate short-term gains and shift money into other investments such as private equity, which generally don’t realize gains for years, the Wall Street Journal reported.
Several endowment chiefs said they might consider moving part of their portfolio to index funds, where they could easily pull money from if their schools need cash, and away from active-trading strategies that could generate tax liabilities, the Wall Street Journal reported.
Targeting ‘woke’ universities
House Ways and Means Chairman Jason Smith, R.-Mo., said last week that “woke universities that ignore antisemitism while amassing endowments that rival those of Fortune 500 companies will be taxed like corporations.”
The 21% rate matches the corporate tax rate.
The tax bill still needs to pass the Senate and get President Trump’s signature.
Funny how Stanford felt there would be no consequences if they let the pro-Hamas students terrorize the Jewish students. Funny how all those geniuses didn’t see this coming. What goes around comes around.
It’s not funny and how you’re wrong.
Stanford should suffer the consequences of allowing these protesters to harass Jews. Imagine not being allowed to walk from point A to point B on campus because you’re Jewish. Jewish students were pushed, shoved, spit at — and the administration didn’t do anything to stop it. The worst of these protesters took over the president’s office, where they were finally arrested. Interesting how one of them got his charges dropped by claiming he was a reporter for the Stanford Daily. How many reporters wear masks when covering a story?
Those kids come from wealthy families who hired top-tier lawyers to spare their children from the indignities of jail. The charges will be pleaded down to misdemeanors and they’ll get community service. Stanford will back down from its threat to expel them, and each will get a diploma and some glowing letters of recommendation. Stanford’s faculty and administration was perfectly OK with the harassment of Jewish students. Now that Trump is on the war path, Stanford is trying to hide or destroy the evidence.
The article is silent on the reasons for the tax treatment, though you wouldn’t know it from the above comments which sound like bot activity or groupthink. Trump has vowed to punish universities that continue to use race in admissions, in defiance of the Supreme Court’s affirmative action decision against Harvard. However, conditioning grant funding on the university’s surrender of its first amendment rights would be patently unconstitutional.
The overwhelming majority of student protesters were peaceful. It’s no secret that Israel agents and anti-Muslim agitators are known to infiltrate the protests to make the students look bad or worse, as Israel agents violently attacked peaceful UCLA students with sticks and bats in LA.
The claims of jewish students being harassed, spit on, and shoved are all unsubstantiated, though hardly surprising given their tendency to lie and conceal their motives. I saw a video of a jewish female college student, who was completely unimpeded in her walking path on campus, start yelling and calling for police to save her from the protesters who looked at her in disbelief and laughed at her delusional claims. She actually approached them and was obviously not targeted or harassed in any way. A more than fair share of these perpetual “victims” who cry “anti-Semitism” at any trivial slight are emotionally disturbed and mentally ill.
Alvin, what’s your opinion about the incident in Boulder? More exaggerations by Jews?