A fair tax code fails if the largest fortunes can route around it. The Accord closes the conversion games that turn labor into capital gains, income into unrealized appreciation, inheritance into tax-free basis step-up, philanthropy into donor-controlled tax avoidance, and gifts into estate-tax escape.
Large institutions accumulate investment returns outside ordinary taxation. Universities, private foundations (including family-controlled), religious endowments, hospital systems, and museums collectively hold approximately $3T in investment portfolios that compound tax-free indefinitely under current law. The Sec 4968 endowment excise (1.4%) applies to roughly 30 universities only; the Sec 4940 private-foundation excise applies to a narrow base. The vast majority of tax-exempt institutional investment income is untaxed.
The structural issue is not whether universities or foundations should be tax-exempt — they should, for their operating mission. The issue is that "tax-exempt" was extended from the operating mission (lecture halls, hospital wards, religious services) to the investment portfolio (the financial assets generating returns to fund the mission). The portfolio compounds at market rates with no friction; over decades this produces wealth concentration in tax-exempt institutional form that's largely outside the public revenue base.
The Institutional Investment Excise applies to tax-exempt institutions' investment assets above a $5M per-entity deduction. The rate is self-calibrating: one-third of the lower of (2-year, 5-year) trailing real S&P 500 total return, floored at zero. Long-run average ~1.4% matching the historical Sec 4968 rate.
In practice this means the institution always keeps two-thirds of real growth. In booms, the excise rises (capturing more of the windfall while still leaving most of it). In crashes, the excise floors at zero (no extraction during a market contraction). Mission-deployed assets — operating campuses, hospital wards, houses of worship, equipment in current use — are exempt regardless of scale. The 24-month operating-reserve safe harbor protects working capital so an institution can manage cash flow without becoming a taxable investment portfolio.
This single instrument REPLACES four earlier proposed mechanisms that were rejected through iteration: (1) 50-year deemed realization on dynasty trusts and foundations (unenforceable; valuation games; political target). (2) Effective Personal Levy inclusion of family-foundation assets in the founder's wealth (constitutional risk — the foundation has no individual beneficial owner). (3) Fixed 1.4% rate on large endowments only (threshold gaming via fractionation). (4) Fixed 1.0% on assets above $1B (fractionation incentive).
The architecture's iteration history is documented in CFG comments at lib/config.ts:272-279.
Tax-exempt institutions with investment portfolios above the $5M per-entity deduction. The population is narrow: roughly the universities, foundations, hospital systems, museums, and religious endowments holding investment assets at scale.
Practically: a small fraction of the ~1.5M total US tax-exempt entities — mostly large endowments and large private foundations. Family-controlled foundations (Bezos Earth Fund, Walton Family Foundation, Bloomberg Philanthropies) are explicitly in scope as a category that under current law accumulates tax-free indefinitely.
Operating mission protected: campuses, hospital wards, houses of worship, equipment in use, and any asset deployed to the institution's charitable purpose. The architecture is explicit that "tax-exempt accumulation" is not "tax-exempt operation" — operating-mission spending continues without change.
Smaller institutions below the $5M investment-asset threshold are entirely outside the rule. The vast majority of US 501(c)(3) entities (community charities, small foundations, individual congregations) never approach the threshold.
Working capital is protected by the 24-month operating-reserve safe harbor: an institution holding cash equivalent to 24 months of expenses to manage program-cycle gaps does not pay the excise on those reserves.
$35–42B/year in normal markets.
Counter-cyclical by design. Revenue is zero in crash years, materially higher in boom years, with the long-run average around ~1.4% of the taxable base. The taxable base after $5M deductions and operating reserves is approximately $2.5–3T (per DNA Chapter 9), implying long-run revenue around the canonical $35–42B band.
The chapter's purpose is philosophical completion of the lifecycle architecture, not revenue maximization. Because every form of capital contributes to the public revenue base — individual wealth via the Estate Tax Prepayment Plan, corporate profit via the rate + book minimum, tax-exempt institutional capital via this excise — rates elsewhere can stay moderate.
See tax ladder · fiscal scoring
- University endowment compounding
- Investment-held endowment assets above the $5M deduction pay the excise. The Sec 4968 (1.4% on a narrow ~30-institution base) is replaced with a self-calibrating rate on the broader institutional base.
- Foundation accumulation
- Private foundations (including family-controlled) pay the excise on investment-held assets. Mission-spending is unchanged; held wealth is priced annually.
- Family-controlled trust holdings
- Dynasty-trust accumulation no longer compounds tax-free. The institutional excise applies regardless of the entity's nominal label (trust, foundation, LLC) so long as it's tax-exempt and holding investment assets.
- Hospital-system investment reserves
- Reserves above 24 months of operating expenses pay the excise. Mission-deployed hospital infrastructure is exempt.
- Religious-endowment compounding
- Religious endowments above the threshold pay the excise on investment holdings. Houses of worship, religious-school operations, and other mission-deployed assets are exempt.
- Threshold-fractionation games
- The architecture replaces fixed-threshold rules with self-calibrating rates precisely to remove the incentive to fractionate across entities. A $10B foundation split into ten $1B entities pays the same total excise as one $10B foundation (subject to the per-entity $5M deduction, which is small relative to the total base).
The architecture closes the named accumulation routes through entity-level pricing.
- Estate Tax Prepayment Plan
- Individual-level companion. The Estate Tax Prepayment Plan prices personal net worth above $10M; institutional excise prices entity investment holdings above $5M. Same architectural intent, different filer category.
- Foundation transfers
- Transfer-tax parity is the move-in side; institutional excise is the staying-in side. Together they close foundation/DAF/family-trust routing as a tax-arbitrage strategy.
- Corporate book minimum
- Where C-corps pay corporate rate + 15% book minimum on profits, tax-exempt institutions pay the institutional excise on investment portfolios. Each entity type contributes through its native architecture.
- Lifetime gifts
- Lifetime-gift cumulative tracking covers the move-in side for transfers to natural persons; foundation-transfer parity covers donor-controlled entities; institutional excise covers the held assets.
- Disclosure architecture
- Tax-exempt institutions already file Form 990 disclosing investment holdings; the institutional excise rides on that existing disclosure infrastructure with minimal new compliance burden.
The Institutional Investment Excise is the entity-level companion to the Estate Tax Prepayment Plan. The Estate Tax Prepayment Plan prices individuals' accumulating wealth above $10M; the institutional excise prices entities' accumulating investment portfolios above $5M. Both at substantially the same long-run effective rate.
Universities, foundations, and religious institutions are tax-exempt for principled reasons — they serve missions the public benefits from. Imposing a recurring tax on their investment portfolios undermines the operating premise. Smaller liberal-arts colleges with modest endowments will be disproportionately affected; research universities will lose grant-funding capacity.
The rate is calibrated to leave two-thirds of real growth with the institution. In a typical year, the institution's endowment grows in real terms even after the excise. In a down year, the excise is zero — no extraction during contraction. Across long time horizons, the institution's investment portfolio continues to grow in real terms; the architecture removes only the tax-free-compounding excess.
Smaller liberal-arts colleges with modest endowments are below the $5M per-entity deduction or close to it; the bite is small or zero. Research universities have average effective rates in the 1.4% range historically (the existing Sec 4968 rate); the architecture extends the same long-run rate to a broader population without changing the typical large-research-university effective rate materially.
Mission-deployed assets — including the universities' campuses, the hospitals' wards, and the religious institutions' houses of worship — are entirely exempt. The excise targets investment portfolios specifically, not the operating infrastructure.