A Higher Power in Higher Education: An Exploration of Endowment Taxes, the Establishment Clause, and College Affordability

Abstract

Institutions of higher education in the United States have enjoyed a broad tax exemption for hundreds of years. In 2017, however, Congress imposed an excise tax on certain colleges’ and universities’ endowment revenue as part of the Tax Cuts and Jobs Act (Act). The endowment excise tax is not scheduled to sunset in 2025 alongside other provisions of the Act, but members of Congress have begun to revisit the issue of whether and how to tax the nation’s educational institutions. This Note examines two endowment tax proposals’ attempts to exempt religious colleges and universities from heightened endowment excise taxes. It argues that although taxing college and university endowments is a possible legislative tool for making higher education more affordable for more Americans, exempting religious schools from such taxes both runs counter to this goal and violates the Establishment Clause of the U.S. Constitution. If Congress chooses to expand college and university taxation, it should do so in a way that effectively addresses the college affordability crisis and treats religious and secular institutions alike.