New tax may snare U of C—but not Northwestern

Crain's Chicago Business reports:

A new tax taking aim at well-funded private colleges and universities may snare one of the Chicago area's two high-profile universities, at least at first.

In the wake of the tax overhaul passed by Congress yesterday, the University of Chicago would likely have to pay a new 1.4 percent levy on its endowment investment income, but Evanston-based Northwestern would not, under the law's provisions. That's because the University of Chicago at the moment exceeds an endowment dollars-per-student ratio threshold, while Northwestern does not, based on recent figures.

Congress said the new tax was warranted because of ballooning endowments at some schools. Detractors, however, attacked it as a harmful blow to educational institutions after the House of Representatives Republicans offered up the idea last month.

"In recent years, the endowment balances at many private colleges and universities have increased dramatically," the law says. "At the same time, college tuition has risen at rates in excess of the rate of inflation." It adds that where an endowment is "so large that it is not commensurate with the scope of the institution's activities in educating students" it's appropriate to impose a "modest excise tax."

The University of Chicago's endowment had $7.5 billion at the end its 2017 fiscal year on June 30, up from $7.1 billion for the same period a year earlier, despite the endowment providing 10.5 percent of the school's operating budget.

For that year, the endowment gained 11.4 percent, after taking into account money manager fees. If the levy had been in effect for that fiscal year, the school's $798 million in gains would have forced it to fork over about $11.2 million in federal taxes. The new tax is slated to take effect next year.

"This new tax will have a negative effect on the ability of universities to make vital, long-term investments in education and research," said University of Chicago President Robert Zimmer and Provost Daniel Diermeier in a memo to the school's community yesterday. In a statement a day earlier, University of Chicago spokesman Jeremy Manier also noted: "A number of details are left undefined in the legislation, making it difficult to assess the bill's full impact."

Some greedy marxists don't want to pay their "fair share".