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Congress must beware that prospective legislation regarding the tax exemption status of charitable institutions does not tax the nation's universities and college's out of existence, Paul C. Cabot '21, Treasurer to the College, told the House Ways and Means Committee in Washington yesterday morning.
Some business practices of educational organizations under present tax laws may justify remedial legislation, Cabot admitted, but he called to the House Committee's attention that the work of private universities is often highly beneficial.
"I think I need not labor the point," he said, "...that the endowed universities and colleges have long since justified, by their unparalleled public service to education, the freedom from taxation which in so essential to their survival."
He warned that such laws as Congress intends to make to curb unfair business practices of universities must be skillfully drawn so an not to severely penalize genuine, worthy institutions.
Unfair School Businesses
The unfair business practices to which Congress and President Truman have been objecting are of two sorts according to Cabot:
The ownership and operation of a manufacturing or commercial enterprise by an educational institution which is in no way or only remotely connected with the normal affairs of that educational institution.
An example of this is the purchase of the Mueller Spaghetti Company by New York University. NYU as a "charitable institution" enjoys a tax exemption status and does not have to pay a 38 percent income tax as a privately owned spaghetti firm would.
The second form of business practices by colleges that has come under Federal fire is the buying of properties from businesses and leasing the name property back to the selling corporation.
Harvard, Cabot, pointed out to the House Committee has never used either of these practices.
Exempt Real Estate Profit
Cabot told the House Committee that the University agreed the buying of businesses by educational institutions was a flagrant abuse of existing tax laws. "It is easy to see," he said, "that two directly competitive businesses cannot in fact compete if one of them must pay 38 percent of its earnings as a federal income tax and the other pays nothing."
He defended, however, the practice of universities of investing in real estate from which they collect rents.
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