CRAWFORDSVILLE, IND. — As the Trump tax code overhaul bill proceeds through Congress, some conservatives are salivating at the prospect of imposing a levy on large university endowment funds. Among these advocates of raiding the coffers of the liberal Ivy League, it’s easy to detect a policy motivated at least in part by animus — “admittedly more of a targeted culture-war jab,” as Ross Douthat writes in the New York Times. The conservative populist R.R. Reno, editor of First Things, has come out in full-throated support of the tax, arguing that it will combat social inequality and division: “Cultural power has become concentrated in a narrower and narrower class of people, and the institutions that serve (and perpetuate) them have become arrogant and detached.”
But even if the most visible elite institutions — Harvard, Yale, Princeton — deserve less of a tax break, there are many small yet regionally important colleges that will be hurt even more by the House bill that passed on Nov. 16. As the legislation heads to the Senate, Republicans should remember this forgotten red-state constituency.
Quite a few small liberal arts colleges have proportionately large endowments, and still struggle to compete in today’s cutthroat higher-education market. On paper they may look wealthy, but their value cannot be measured strictly in cash. They are often places that create priceless opportunities for social mobility — especially when they are in the heartland.
Consider for example private colleges in Indiana, home state of Vice President Pence. In the Hoosier state, four schools have endowments large enough to be affected by the current legislation, which would collect a 1.4 percent tax on universities that hold investments greater than $250,000 per student. Only one, the 12,000-strong University of Notre Dame, with its $11.8 billion endowment, is a household name. The other supposedly wealthy schools in Indiana — DePauw University, Wabash College and Earlham College — all are comparatively tiny, with the largest, DePauw, enrolling 2,161.
These colleges were all founded before the Civil War, allowing them some time to build up large nest eggs. They no doubt once benefited from the era when the now-troubled Rust Belt was creating significant amounts of new wealth. Today their operating budgets rely in part on annual income from endowments that range from $321 million (Wabash) to $644 million (DePauw).
Are these Midwestern institutions walled citadels of a rich Indiana gentry? Hardly. At Wabash College (where my wife is a visiting professor), about one-third of the students qualify for low-income federal Pell Grants, and 40 percent are first-generation college students. Compare this to Yale, Princeton and Columbia, where 17 percent of undergraduates received Pell Grants in 2015, or Harvard, where only 15 percent are first-generation students. At even the geographically closer Notre Dame, only 10 percent of students are classified as lower income.
Georgetown, the university credited with raising the young Bill Clinton from Arkansas obscurity, today only draws 3.1 percent of its students from families in the bottom quintile of family incomes — yet its $1.5 billion endowment, supporting 7,453 undergraduates who are largely children of the wealthy, is not large enough to be taxed under the flawed formula of the pending legislation.
Unlike their peers of global ambition, Midwestern regional colleges mostly help those in their own back yard — not coastal elites. Seventy percent of Wabash students are Hoosiers, coming from a state that ranks 35th in median household income and is home to many communities ravaged by the opioid epidemic. The college’s graduates join a loyal graduate network that helps advance their careers and enables them to give back to their communities. In many cases, they create businesses and generate new wealth in a region that undoubtedly needs more entrepreneurship. As Wabash President Gregory Hess told me, “We pick up a lot of strivers, kids who are trying to move up, and this college seems to be able to deliver that at a pretty affordable price.”
In a competitive higher-education market, small colleges already need a war chest to survive, and under an added tax burden, fewer poor students would benefit from a liberal arts education. As Hess explains, “At a tight time, as we serve a lot of families that have needs, putting a bigger burden on us is going to mean we can’t provide as much of their need.” Hess expects some kind of tax restructuring to pass, and suggests that if university endowments must come under the microscope, taxation should be limited to any portion of investments that don’t directly benefit student aid.
Tax policy at the federal level is by its nature a blunt instrument, but it should not weaken institutions that enable social mobility here in the Rust Belt. Indiana’s leading private colleges represent the best of the American tradition of small-scale, multigenerational associations that care for the local community. As Alexis de Tocqueville observed around the same time these colleges were founded, they are places where “feelings and ideas are renewed, the heart enlarged, and the understanding developed.” Republicans would be wise not to destroy a long heritage of heartland striving.
Correction: An earlier version of this story incorrectly stated when the House passed a tax bill.
