Endowments and Federal Tax Policy

Understanding how endowment assets are distributed across institutions, why institutions build endowments, and the arguments for and against subsidizing higher education by exempting endowment income from taxation sheds light on the merits of this policy change. The discussion in this brief and the analysis on which it is based lead to the conclusion that it is vital that the inequality of resources across educational institutions be diminished. But if the goal is to increase college access, affordability, and success, taxing endowments is unlikely to be effective. Instead, the focus should be on increasing subsidies to low- and moderate-income students and the institutions that educate them.