Trump’s spending bill heading to the Senate would exempt religious universities from a massive tax hike on donations. However, some religious institutions may not qualify and raise First Amendment concerns.
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As the Trump administration is stepping up wars with Harvard University and other institutions that are seen as awakening to critics, it has secured major exceptions for religious institutions, such as from a massive tax hike on university contributions.
But the new tax provisions in Trump’s spending bill, called “one, big, beautiful bill” now in the hands of senators, are not applicable to all religious universities and universities, raise the First Amendment question and raise the possibility of legal agenda.
Increases in donation revenue could cost some elite colleges hundreds of millions of dollars. But the tax threatens to envelop more than the latest target of the president’s rage. Some of the Christian schools preferred by conservatives are several Christian schools that have raised concerns about the bill despite sculptures in the religious system.
For example, the bill is Touch Hillsdale University in Michigan, a private school that has long rejected federal funds to maintain autonomy from national regulations.
It could also attack DePauw University, an Indiana facility founded by Methodists in 1837. In 2024, the school received multiple gifts worth $200 million.
The school is still affiliated with the Methodist Church, but its senior leaders question whether tax increases can be avoided. Though he has not paid any current donation taxes, Andrea Young, the university’s vice president of finance, said the proposed tax hike could cost between $2 million and $5 million a year.
The university’s contributions currently amount to approximately $917 million. This is well below the billions that are common among top colleges. While they awaited the law, DePauw staff have been communicating with lawmakers about the potential impact.
“Tax on donations directly affects the amount of financial aid that students can give,” Young said. “Instead of increasing access, it could potentially reduce access to students that are actually needed.”
Donation tax structure for higher education “very innovative”
Congress passed the current 1.4% tax rate in 2017. This applies to schools with over 500 students, with contributions of over $500,000 per student. The new bill adds a taxable tier of up to 21% to institutions where students are adjusting funds that exceed $2 million. International students will be excluded for each student’s number. This means that more institutions are likely to face taxes.
Philip Levine, an economics professor at Wellesley University in Massachusetts, says that hierarchical tax systems are already used to calculate income taxes and other things, but similar structures are “very novel” for higher education.
In particular, the proposed tax includes exemptions from schools, which are “qualified religious institutions.”
This Act defines an institution established after July 4, 1776, as an institution established by or through a religious organization, maintaining its affiliation and having an institutional mission “referenced or designated, including religious doctrine, belief, or teaching.”
These details suggest that the exemption is “clearly enacted for political reasons, not economic reasons,” Levine said.
Certainly, House Republicans are promoting donation taxes as a way to preserve the country’s finest universities responsible for policies they disagree with.
“We will ensure that elite universities that operate like major companies and other tax-exempt entities with taxes are liable and cannot abuse the generous benefits offered through tax laws,” the House Ways and Means committee wrote in a statement.
There are only a handful of schools in a country that predates the American revolution, but they include institutions such as Harvard, Columbia and Yale. Harvard, for example, was founded by the Puritans in 1636 and continues to run the seminary. According to the New York Times, its donations amount to over $50 billion, making it the largest in the world.
Many religious schools established after the country’s founding maintain ties with the sect. But it raises questions about which religious systems, not all, could be exempt.
For example, Earlham College in Indiana, founded by the Quakers in 1847, maintains its annual Western friendship. However, in 2010, the university left its legal partnership with the Indiana annual conference.
Then there was a school like Berry University in Georgia, founded in 1902 with the “commitment to become a Christian forever in the spirit,” but never “a statement of the sect of faith.”
Hillsdale College may face similar uncertainty as taxes. Freewill Baptists began schools in 1844 as a non-denominational institution.
The university refused to say whether it believed it qualifies for the exemption, but its president, Larry Ahn, wrote a column against the donation tax. They also hired lobbyists to address the threats associated with it, Politico reported.
In his column, Arnn does not address the issue of religion. However, he described the tax as an invasion of Hillsdale’s autonomy that affects its ability to provide financial aid.
“It forces us to cut resources, limit opportunities and pass burdens on students and their families.
Others share Arnn’s skepticism.
Christian University and the University Council, an organization with more than 150 member institutions in the US and Canada, said it was “in principle we have serious concerns about donation tax.”
But it welcomed a religious school break. The organization hopes that the exemption will be applied to the institution without continuing partnership with a particular sect.
“Many schools operate with clear and consistent religious identities while still remaining independent of formal sectarian structures,” said spokesman Amanda Staggenborg.
“These institutions are no less than their faith-based duties and are worthy of protection.”
USA Today reached the White House for comment.
Could taxes lead to more lawsuits?
According to Daniel Conkle, professor emeritus at Indiana University MAURER LAW, the proposed tax structure “equivalent to a kind of gerrymander,” if it was enacted, would violate the First Amendment.
Allowing exemptions from religious schools is foreseeing religion over secularity, restricting exemptions from restricting exemptions only to institutions established after 1776, and is prohibited by longer-held religious groups.
Conkle was Larsonv in 1982. We took note of the US Supreme Court decision in Valente. This is a lawsuit in Minnesota that has created various reporting requirements for religious organizations and was created according to the number of those that came from their members depending on the number of contributions.
In a majority writing, Judge William Brennan said, “The clearest order in the establishment clause is that one religious sect cannot officially take priority over another.”
For the donation tax to be constitutional, Concrete must have content-neutral justifications in structures that show that it is not targeting universities by discriminating against religion in violation of perceived “purpose,” freedom of speech, or establishment clauses.
He said the major financial implications of the proposed tax structure mean that if it is passed to the law, “the lawsuit will certainly occur,” Konkle said.
Why not lower your donation?
Donations are generally from private donors, often consisting of donations that have accumulated over the years. The donated gifts are intended to provide long-term support to universities and universities, and may have restrictions on how donor costs are being used.
Critics of large university contributions often wonder why schools receive taxpayer funds.
Overall, universities do not directly deduct money from donations to fund financial aid. Rather, they invest those funds and use those returns to provide scholarships. Young said the idea of giving is to provide support not only to students in their current class, but to everyone in the future.
Young said he is reducing his donations and limiting his ability. Furthermore, for donations to remain effective, they must grow to meet the demands of the economy. A shrinking donation cannot make it, Young said. At the same time, universities generally have to raise tuition fees to accommodate the costs of inflation.
“We will also increase the amount of aid we give each year due to inflation,” Young said. “It’s a vicious cycle because our contributions are subject to taxes that undermine our capabilities.”
What better way to tax university funds?
University donation taxes also show pushbacks from unexpected sources.
Neil McCrusky of the Cato Institute, leaning towards libertarians, wrote that taxation should not be used to punish political enemies, but that was clearly the goal of the Republican plan. He said the donations came from donors who are willing to give money. He is the model that argued that the government should be rewarded.
“If people want to “wake up and give their money to elite universities,” who is the government? Instead, it needs to worry about its own forced funding for higher education,” he wrote.
James Murphy, director of post-secondary policy at Advocacy Group Education Reform Now, also questioned the motivation behind the tax, saying the first version of the donation tax could not cut education costs.
He added that it is unrealistic to expect the university to simply enroll more students and register below $500,000 per student figure. For example, Harvard University needs to add another 80,000 students, he wrote in a recent column.
“Donation tax isn’t necessarily a terrible idea, but this version is certainly a terrible idea,” he said.
Others believe that university contributions should be taxed, but have certain goals in mind.
Simon Cataldo, a Democrat in Massachusetts House of Representatives, introduced a version of the donation tax — he calls it a public service fee — in anticipation of a ruling in January 2023 on a positive case by the U.S. Supreme Court.
His laws target institutions that use what he described as unfair admission practices, including giving benefits to legacy students. Under his model, Harvard is taxed, but institutions like the Massachusetts Institute of Technology did not. His rate is also much lower. At the highest rate, the university pays 0.2% of the donation. That rate is also based on the contribution rate per student.
Additionally, Kataldo said his proposal, which is still under consideration in the state legislature, would redirect money to public universities.
“Shame on Democrats for not identifying this issue as important and resonating with the general population,” Kataldo said. “This bill is written much more carefully to address actual harmful practices and, importantly, gives schools the option to do the right thing.”
Reports on the First Amendment issue for USA Today are funded through collaborations between the Freedom Forum and Journalism’s fundraising partners. Funders do not provide editor input.
