June 30, 2025
On Monday, June 30, 2025, campus leaders sent an update to Yale faculty and staff regarding proposed federal actions that directly impact Yale. The message described the magnitude of these actions’ potential financial implications. The following FAQs supplement the communication and provide additional background information.
Can you explain in greater detail the university endowment tax and the proposals that Congress is considering?
Each year, the investment returns on Yale’s Endowment fund one-third of the university’s total operating budget and nearly two-thirds of the budget outside the medical school, supporting critical priorities including student financial aid, faculty teaching and salaries, and scholarship and research.
Currently, under a provision of law enacted in 2017, Yale’s endowment income is taxed 1.4% annually, which equates to an annual payment of approximately $45 million to the federal government.
As outlined in President McInnis’s May 22 message, recently drafted legislation passed by the U.S. House of Representatives proposes to increase the university endowment tax to 21% annually, beginning in fiscal year 2027. This legislation has now moved to the U.S. Senate, where a somewhat smaller but nonetheless damaging tax of 8% is under discussion.
As the tax moves through the legislative process, it is subject to change, and we will not know the impact on the university until budget reconciliation is complete. Regardless, should this legislation pass, Yale would be required to pay the federal government hundreds of millions of dollars more per year, resulting in a significant gap in the funds that make up Yale’s annual budget.
What kind of reductions in funding is the federal government proposing?
The federal administration has proposed major reductions in support for research performed on behalf of the American public. The National Institutes of Health (NIH) and National Science Foundation (NSF) are facing 40% and 56% budget cuts, respectively, a drastic reduction in agency funds for research that saves lives and advances the next generation of innovation. The federal administration has also called to eliminate the National Endowment for the Arts (NEA), the National Endowment for the Humanities (NEH), and the Institute of Museum and Library Services (IMLS), which support education and learning, enhance our nation’s vibrant culture, and strengthen our democracy.
In fiscal year 2024 alone, Yale faculty and students received approximately $900 million from federal agencies to support critical research and scholarship. The grants they were awarded supported, for instance, efforts to develop a quantum computer, advance medical breakthroughs that help infants with heart defects, and identify treatments that prevent diabetes, in addition to other critical endeavors. Deep cuts to federal agencies will limit the funds available to conduct this and other important work that improves human health, contributes to national security, and generates economic growth.
In addition to cutting federal agency budgets, the administration has sought to institute a cap on reimbursements for essential research infrastructure known as facilities and administrative (F&A) costs. F&A cost reimbursements support laboratory space and utilities, patient safety services, hazardous waste disposal, regulatory compliance, and more. This cap is currently on hold following legal challenges that Yale and partners have supported, though the ultimate outcome of this litigation is still uncertain. These F&A cuts could result in the loss of hundreds of millions of dollars that Yale relies on each year to support research. Additionally, Congress has made clear that it will adopt systemic changes to policies for reimbursement of F&A expenses, and it has invited advice from the research community. Yale is actively contributing to the discussion. While the outlines of the new system are still taking shape, it is likely to result in fewer funds reimbursed to universities for the costs they incur to conduct federally sponsored research on behalf of the American public.