Endowment Accountability Act

Bill Number

H.R. 1128

Origin Chamber

House

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-02-07: Referred to the House Committee on Ways and Means.

Last Updated

2026-03-31T14:52:11Z

AI-Generated Summary

Purpose

The "Endowment Accountability Act" (H.R. 1128) aims to hold private colleges and universities more accountable for their financial resources by increasing taxes on their investment income and expanding the number of institutions subject to this tax. It targets endowments—large pools of invested money that generate income for schools— to generate more federal revenue while broadening the scope to include smaller wealthy institutions.

Key Provisions

• Tax Rate Increase: Raises the excise tax (a special tax on certain goods or activities) on the net investment income of qualifying private colleges and universities from 1.4% to 10%.
• Expanded Definition of Affected Institutions: Lowers the threshold for an "applicable educational institution" from $500,000 to $200,000 in aggregate fair market value (the estimated market price) of assets per student. This means more schools with endowments exceeding this new lower limit will face the tax.
• Effective Date: Changes apply to tax years starting after the bill's enactment.

Significant Changes to Existing Law

• Under current law (Section 4968 of the Internal Revenue Code of 1986), only private nonprofit colleges and universities with at least $500,000 in endowment assets per student are subject to a 1.4% excise tax on their net investment income.
• This bill replaces that rate with 10% and reduces the asset threshold to $200,000 per student, effectively taxing a wider range of institutions while significantly increasing the financial burden on those already covered.

Potential Impacts

• On Government Agencies: The Internal Revenue Service (IRS) will collect substantially more revenue from affected institutions, potentially increasing federal funds for broader uses like education or debt reduction. Administrative workload may rise to verify endowments and calculate taxes for newly included schools.
• On Citizens and Institutions: Private colleges and universities, particularly those with large endowments (e.g., Ivy League schools), could face higher costs, possibly leading to tuition increases, reduced financial aid, or shifts in investment strategies. Students at these schools might indirectly feel the effects through changes in school resources. Smaller private institutions just above the new threshold could be unexpectedly burdened.
• On International Relations: Minimal direct impact, though foreign students or international endowments at U.S. schools might indirectly affect global perceptions of American higher education affordability.

Main Stakeholders Affected

• Private Colleges and Universities: Primary targets, especially nonprofit ones with endowments over $200,000 per student; larger institutions like Harvard or Yale will pay the most, while mid-sized schools newly qualifying may face new compliance costs.
• Students and Families: Could experience ripple effects on tuition, scholarships, or program funding at affected schools.
• Federal Government and Taxpayers: Benefits from increased revenue but may see debates over higher education funding.
• Internal Revenue Service: Responsible for enforcement and collection.

Notable Legal, Constitutional, or Political Implications

• Legal: Relies on Congress's constitutional power to tax (under Article I, Section 8), building on existing tax code provisions without creating new categories of taxable entities. It may prompt legal challenges from schools arguing the tax unfairly targets educational nonprofits.
• Constitutional: No major issues anticipated, as it amends an established tax law, but it could raise questions about equal protection if seen as discriminatory against private education.
• Political: Highlights ongoing debates on wealth inequality in higher education, potentially influencing future tax policies on nonprofits; it promotes fiscal accountability for endowments but could polarize views on government intervention in academia.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Lawler, Michael [R-NY-17]

Recent Actions

• 2025-02-07: Referred to the House Committee on Ways and Means.
• 2025-02-07: Introduced in House
• 2025-02-07: Introduced in House

Bill Versions

• Endowment Accountability Act — issued 2025-02-07 — PDF (2 pages)