Reply to LACs will avoid endowment tax

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]They also dropped the part that excluded international students from the calculation and lowered the rates to 1.4% between $500-750k per student, 4% between $750k-$2 million per student, and 8% over $2 million. A big nothing-burger for most institutions in the end.[/quote]

Wow, people made such a big deal out of nothing. Life goes on.[/quote]

For the schools subject to the tax, it’s a huge deal.  This is a tax of several *billion* dollars for most of them. [/quote]

No, it is not. An 8% tax on investment income (because it is not on the whole endowment, but on investment income only) is a billion dollars for exactly zero institutions. For Harvard it is maybe a bit over $300 million and it goes down quickly from there for other institutions. And that’s on an endowment over $50 billion and before they take steps to reduce their realized investment income. There are only four other institutions above the size threshold and in the 8% bracket. [/quote]

I'm confused. Is the endowment tax a tax of AUM or on the income the endowment generates? I always thought is was the AUM.[/quote]

It’s on net investment income of the university, which comes predominantly (though not exclusively) from the net investment income of the endowment. The endowment’s assets are only used to determine the tax rate thresholds (e.g., between $500k-$750k per student you get hit with a 1.4% rate, $750k-$2mm is a 4% rate, etc).[/quote]

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