Democrats warn Yale: Cut a deal with Trump and lose your tax exemption

As Donald Trump wages what critics have called a "war on universities" — threatening to cut off federal subsidies — Democratic lawmakers are now turning up the heat on Yale University from the other direction. Fearing the Ivy League school may capitulate to federal pressure over its diversity policies, Connecticut state legislators have warned that Yale could lose its tax-exempt status if it reaches a settlement with the Trump administration over admissions policy.

According to Bloomberg, Connecticut Democratic state lawmakers — many of them Yale alumni — said Friday they would move to review the university's tax-exempt status if Yale settles with the Trump administration over an investigation into its admissions practices.

Eight Democratic state lawmakers wrote to Yale President Maurie McInnis on July 16, saying they "urge in the strongest possible terms that Yale not negotiate with the Trump administration."

The letter, led by state Rep. Matt Blumenthal, a Yale Law School graduate, said "if Yale does not use its enormous financial resources, social influence, and legal capacity to defend academic freedom, the state legislature can seriously reconsider the privileges it has granted, and we will support that."

Earlier, Yale President McInnis had disclosed that the university was in talks with the Justice Department toward a voluntary resolution of investigations into admissions practices at its medical school, law school and undergraduate programs.

At the heart of the dispute is the controversy over race-conscious admissions policies.

The Justice Department announced in May that Yale's medical school had continued to use race as a factor in admissions even after the Supreme Court's 2023 ruling that race-conscious college admissions were unconstitutional. The department said Black applicants were up to 29 times more likely than Asian American applicants with equivalent academic records to receive a medical school interview.

Yale is already facing a heavier federal tax burden as a result.

The "One Big Beautiful Bill" passed this year introduced a progressive excise tax on private university endowments, raising Yale's effective tax rate on net investment income from 1.4 percent to 8 percent. The change is estimated to increase the university's annual tax bill by about $300 million.

On top of that, Connecticut's Democratic lawmakers have ratcheted up the pressure by threatening to strip Yale of its state-level tax benefits as well. They warned they would introduce legislation to eliminate the special tax exemptions granted to the university if it reaches a settlement with the Justice Department.

Democrats currently hold majorities in both chambers of the Connecticut state legislature. The lawmakers noted that Yale, founded in 1701, "enjoys special tax benefits that cannot be found anywhere in state law."

Yale faculty, students and alumni have also voiced opposition, urging the university not to reach any agreement with the Trump administration.