In a country where higher education is one of the few remaining ladders to economic mobility, the latest House budget reconciliation bill sends a deeply troubling message: tax colleges and universities that educate our future workforce but let corporations and the ultra-wealthy continue to skate by.

Buried in the sprawling legislation is a dramatic escalation of the endowment tax — increasing the interest rate from 1.4% to as high as 21% on the net investment income of private institutions with the largest endowments. This marks a massive departure from precedent, redirecting scrutiny away from our nation’s billionaires and wealthiest companies and targeting nonprofit colleges and universities. At EdTrust, we believe this approach not only misdiagnoses the problem, but it also actively undermines affordability and access in higher education.

The endowment tax is a tax on the investment income generated from the endowments of private colleges and universities. These endowments are long-term pools of money, often donated by alumni or philanthropists. They are used to support a wide range of university functions — everything from student scholarships to faculty salaries and critical research.

The Tax Cuts and Jobs Act of 2017 imposed a 1.4% tax on the investment income of private institutions with endowment assets exceeding $500,000 per full-time student and with at least 500 full-time students. The rationale at the time was that private institutions with large per-student endowments were sitting on vast pools of wealth and should contribute more to the public coffers.

But what was once framed as a modest revenue generator (56 universities paid $380 million in 2023) has now ballooned into a punitive strike. The House bill dramatically increases the tax rate, applying a graduated penalty structure that could push it as high as 21%, depending on the endowment’s size per student. That’s a rate comparable to — or even exceeding — what many small businesses pay and more than what the wealthiest Americans and biggest corporations contribute on their own assets.

Let’s put this in perspective. According to a ProPublica investigation, the 25 richest billionaires in the U.S. paid a “true” federal income tax rate of just 3.4% between 2014 and 2018. By contrast, the average American paid 13.3%. In other words, nurses, teachers, and small business owners shoulder a heavier tax burden than the wealthiest Americans.

If you think that it is just the nation’s wealthiest Americans avoiding paying their fair share, you’re wrong. The wealthiest corporations pay little, if anything at all, in federal taxes. According to the Institute on Taxation and Economic Policy, 55 of the nation’s largest corporations paid no federal taxes. Researchers estimate that the U.S. government lost $135 billion in revenue due to tax avoidance in 2017 alone. To put that into context, the estimated cost for Debt-Free College is $75 billion.

And now, some of our nation’s most well-resourced and mission-driven colleges and universities are facing a tax rate more than four times what billionaires pay on their wealth.

Supporters of this approach argue that elite institutions are hoarding wealth and that this tax will push them to “do more” for the public good. But the facts paint a different picture. Many of the affected institutions already provide substantial aid to students from low-income backgrounds and operate critical research initiatives. Their endowments allow them to offer financial aid packages, maintain need-blind admissions, in many cases, and invest in academic programs that serve the broader public.

The idea that siphoning billions of dollars from these institutions will somehow “level the playing field” is a part of the Great American Heist — a political sleight of hand that distracts from the real inequities in our tax system and punishes the very places that enable opportunity.

If Congress is truly interested in ensuring that the wealthiest contribute to the common good, there’s a much more obvious place to start: our nation’s billionaires and the corporations that profit without paying their fair share.

Implementing a wealth tax on U.S. billionaires of 2% on wealth over $50 million and 1% on wealth over $5 billion would generate over $114 billion annually along with eliminating the tax loopholes that allow corporations to continue avoid paying taxes would generate enough revenue to make public college tuition-free for millions of students.

Instead, we’re seeing proposals that would net just $3.5 billion over 10 years from endowment taxes while barely scratching the surface of America’s real wealth.

If you think that this approach is impossible, you’re wrong. Massachusetts and Washington have both adopted these approaches to create free college programs. In Washington, the Workforce Education Investment Act, was signed into law in 2019. The program is funded by a higher business and occupation tax on professional services that increases depending on the size of the business and was expected to generate $1 billion in revenue over four years. Massachusetts voters approved the Fair Shair Amendment a 4% tax on annual income above $1 million. The tax is estimated to provide the state with $2 billion annually and is being used to fund Massachusetts free community college program. The resources to make college free exist; what is missing is the political will to hold businesses and the wealthy accountable.

This bill is the latest in a disturbing trend: scapegoating higher education while the wealthy remain unchecked at the top. We’ve seen it in anti-DEI policies, efforts to ban curriculum, and attacks on institutional autonomy. The endowment tax is simply a financial extension of this ideology: starve the institutions that challenge, empower, and educate the next generation, while protecting those who profit most from inequality.

It’s no coincidence that this provision comes at a time when public trust in higher education is at a low point. By framing colleges as greedy hoarders, lawmakers build public support for slashing funds, gutting protections, and reshaping the entire sector to serve narrow ideological ends.

Students need a tax code that advances and prioritizes economic opportunity, not one that undermines it. A society that taxes scholarships more than stock buybacks has lost its way.

Let’s be clear: taxing college endowments at higher rates than billionaire fortunes or corporations is not a strategy for economic opportunity. It’s a betrayal of it. It’s time for policymakers to get serious about taxing wealth, and to stop using our education system as a scapegoat for broader structural failures.

At EdTrust, we’ll continue fighting for a higher education system that works for all students, especially those who have been historically excluded. Americans don’t need additional taxes on education — we need to tax billionaires and corporations fairly.

This isn’t just bad policy — it’s a classic bait-and-switch. While billionaires quietly load their getaway cars, the very institutions working to expand opportunity are being cast as the culprits. Lawmakers can’t keep turning a blind eye. It’s time to tax billionaires or leave students caught in the crossfire of broken policies.