Study Proposes Excise Tax on Harvard’s Endowment

Harvard receives $48,000 per student in tax subsidies and appropriations from local, federal, and state authorities, an amount that dwarfs the tax subsidies of nearly all other colleges in Massachusetts, a study published this month by the Nexus Research and Policy Center found.

The study argues that Harvard and all other institutions with endowments over $500 million should pay an excise tax on a sliding scale ranging from .5 to 2percent on their endowments annually. If implemented, the tax would generate approximately $5 billion of revenue, according to the study.

“It is only fair that Harvard and its wealthy peers step up and pay back a part of what the nation’s taxpayers have granted them through tax exemptions,” wrote the study’s co-authors Jorge Klor de Alva, the president of Nexus, and Mark Schneider, a vice president for the American Institutes for Research.

In comparison, the University of Massachusetts, Amherst, the flagship public institution in the state, receives only $9,900 in tax subsidies per student, according to the study. Princeton received more than $100,000 in tax subsidies per student, while Stanford and Yale both eclipsed $60,000.

The authors noted in their study that “the proposed tax should be able to be offset annually by the amount the school appropriates for financial aid,” preventing lower- and middle-income students from receiving reduced financial aid packages as a result of the excise tax.

The authors noted that the revenues could nearly fund the $6 billion proposal by the Obama administration to make community college completely free for eligible students. However, Klor de Alva argued that the funds could help elevate national education levels if allocated not just to community colleges but more broadly to higher education as a whole.  

“It would be a much more fair redistribution of money that the nation needs in order to improve higher education, and I think that’s a big contribution that these institutions could make,” he said.

This is not the first time such an idea has arisen but failed to be enacted. Former U.S. Representative David L. Camp proposed last year that particularly wealthy institutions pay a 1 percent excise tax on their endowments, and the Massachusetts House of Representatives considered a 2.5 percent tax in 2008.

“[The Massachusetts House proposal] was opposed by the alumni—these are powerful people—and the initiative died,” Schneider said.

For its part, Harvard contends that the endowment provides important funding for programs that impact those outside of Harvard’s gates.

“Tuition and sponsored research, the two other major sources of financial support for universities, do not cover the full cost of the education or research that Harvard and its peers support,” University spokesperson Jeff Neal wrote in an email.

As examples of the impact that Harvard’s endowment supports, Neal cited the University’s role as the fifth largest employer in the state, the $1.3 billion it spent on construction in the past year, and its efforts to have a positive impact on the community through numerous programs.

In the past, Harvard has not completely fulfilled the “payment in lieu of taxes” program the city of Boston conducts. Last year, the University paid only slightly more than 50 percent of the $4.3 million the city of Boston requested to offset the cost of municipal services, citing monetary and programmatic contributions that benefit the residents of Cambridge and Boston.

—Staff writer Tyler S. B. Olkowski can be reached at tyler.olkowski@thecrimson.com. Follow him on Twitter @OlkowskiTyler.

Tags