The Republicans behind Trump’s “one big beautiful bill” have propagated a grossly misleading perception of the legislation’s sharply increased tax on university endowments. Rep. Jason Smith (R-MO), chair of the House Ways and Means Committee, says that the bill “subject[s] the largest endowments to the corporate tax rate.” True, at 21 percent, the top rates on corporations and university endowments would be nominally the same, but that is a false equivalence, as corporations have access to deductions that university endowments don’t.

Corporations don’t pay an effective rate of 21 percent; they pay considerably less. According to a report by the U.S. Government Accountability Office, after the 2017 Trump tax legislation cut the top nominal rate on corporate income from 35 percent to 21 percent, the effective tax rate—the percentage of income companies paid after tax breaks—fell on average to 9 percent in 2018. In contrast, the current House bill wouldn’t allow universities any significant breaks from the tax on endowment income.

The endowment tax rate in the House bill is graduated according to the size of a university’s endowment, relative to the number of U.S. students (foreign students don’t count). Universities with endowments per student of $2 million or more are subject to the 21 percent rate. (Full disclosure: I teach at one of those institutions, Princeton University.) The rate is 14 percent for endowments of $1.25 million to $2 million per student; 7 percent for endowments of $750,000 to $1.25 million per student; and 1.4 percent for endowments of $500,000 to $750,000 per student.

But even at the lower levels, the Trump endowment tax would still impose a higher effective tax on universities subject to the tax than on a business with the same overall income and expenses. To be equivalent to the corporate income tax, the tax on universities would have to be levied on their net income. Universities, however, typically have little or no net income, because they use the income from their endowment to make up for operating losses (including student aid) and to pay for capital investments (which this legislation wouldn’t allow them to depreciate).