Tax Elite Colleges

From Harvard University in Massachusetts to Princeton University in New Jersey, the perceived value and resources of elite colleges have increased exponentially over the past four decades thanks to benefits provided by the federal government. The 1980-1981 fiscal year report from Harvard estimated the value of its investments and assets as roughly $2.1 billion. Yet in 2025, the size of its endowment reached $56.9 billion, or $48.6 billion when adjusted for inflation. Despite these tremendous returns, the resources and opportunities offered by these colleges have barely grown. In 1976, Harvard accepted 1,600 applicants. Nearly 50 years later, this number has only risen to 1,937 accepted students. Additionally, as the number of applicants jumped massively to 54,000, the acceptance rate plunged from 19 percent in 1976 to 3.59 percent in 2024. It’s clear that the expansion of Harvard’s resources has far eclipsed the number of opportunities offered by the school. Even though the university has the resources, know-how, and number of qualified applicants needed to expand its services exponentially, it intentionally stunts the size of its freshman class to maintain its image of exclusivity. 

At the same time, Harvard and other elite colleges enjoy massive benefits from the government. The college largely doesn’t pay taxes due to its classification as a non-profit educational institution. In fact, the only tax on Harvard’s significant endowment is in President Donald Trump’s Tax Cuts and Jobs Act, levying a 1.4 percent excise tax on colleges with endowments worth more than $500,000 per student. While paying minimal taxes on its multi-billion dollar endowment, the college receives federal funding financed by American taxpayers. Throughout the past eight years, Harvard received $4.4 billion in research funding from the federal government. The nature of these research grants extends far beyond the research actually being carried out; they are entirely fungible and can go to a wide variety of sources not directly related to the research itself, making them more of a subsidy than a grant. The cost applied to the taxpayer is twofold: not only do colleges, despite their massive endowments, not contribute to federal funding, but they also actively drain it. 

Elite colleges do provide significant benefits to society. They carry out important research, attract talent, and provide financial aid. However, even under taxes set forth by the One Big Beautiful Bill Act, the most wealthy institutions will only pay eight percent of net investment income, far lower than the corporate tax rate of 21 percent. Financially, paying much lower taxes will not massively impact elite colleges when they already have repeatedly increased tuition fees and have hit remarkable growth rates on their investments. 

While elite colleges grow wealthier with the help of tax breaks and federal subsidies, another portion of higher education has begun to falter. Public universities are the backbone of social mobility and contribute significantly more to helping the underprivileged advance their education and future careers than elite private colleges, yet have suffered significant budget cuts. The City University of New York (CUNY) is just one of the many examples of this concerning nationwide trend. In the 1990s, over 70 percent of those enrolled in CUNY came from the bottom fifth of the income distribution, but graduated on their way to the middle and even upper middle class. However, CUNY has faced persistent budget cuts, including a cut of $155 million in fiscal year 2023, threatening the school’s resources and capacity of hiring effective teachers and, in turn, its ability to effectively teach students. 

Similar stories can be found across America as states continue to cut funding for public universities while our government simultaneously allows the investment portfolios of Harvard, Yale, and Princeton to explode. Far greater federal funding for public universities could be acquired through the greater taxation of elite universities. As we pour money into elite colleges and grant them tax breaks, we’re allowing these public universities to fail. Going forward, the focus of the federal government must shift from supporting the already-thriving elite colleges to backing public universities that serve millions of Americans every year. 

Tax revenue is collected from the American people, so it must be used to maximize benefits for all Americans. The government has given elite colleges more federal subsidies as they leave the greater people behind and rapidly pull back opportunities. To rectify these issues, the federal government needs to increase taxes on the endowments of elite institutions, cut federal funding for those institutions, and invest more into supporting our public universities. If the United States wishes to restore higher education as a way to truly serve the American people, it’s time to make a change.