The Tax Cuts and Jobs Act recently signed into law contains a provision for an endowment tax. Colleges and universities with endowments of $500,000 or more per student face a tax equal to 1.4% of their investment income.
Since community foundations are in the endowment business, the phrase endowment tax should cause us some concern. Part of me feels comfortable in knowing that we do a lot of good for our communities, and our friends would support us on Capital Hill if such a tax was aimed at us.
Part of this, though, scares the bejeebers out of me ... much like the Wicked Witch of the West waving a flaming broom at the straw-filled Scarecrow.
A college professor is quoted in a Wall Street Journal article stating his reasoning for justifying the tax. “There is an absurd amount of inequality when it comes to the value of college endowments,” said the professor, “This is recognition that if you’re going to hoard all this money and it’s just kind of sitting there and not being spent on students, we should actually tax it."
Endowments are not "hoarding". They are a community's savings account, to serve the needs of your community now and in the future.
If you want the real reason for the endowment tax, we need to turn to the great philosopher, bank robber Willie Sutton. "Why do you rob banks?", Willie was asked. He responded, "Because that's where the money is."
Why tax endowments? Well, you know the answer.