This past Thursday, the Republican-led Committee on Ways and Means released the Tax Cuts and Jobs Act, which will seek to deliver on various conservative talking points such as lowered corporate taxes. Whatever the merits of trickle-down economics, the legislation does not include exclusively cut taxes; it also includes a measure to tax university endowments. In particular, it would tax the endowment income of private institutions with at least 500 students and assets of $100,000 or more per full-time student at a 1.4 percent rate. Though this tax may seem trivial, Harvard, for example, would have paid nearly $43 million this fiscal year to the federal government were it to have been in place.
The rationales for this tax are varied. The most immediate justification is to offset the aforementioned corporate tax cuts; the measure would bring in an approximate $3 billion from 2018 to 2027 from approximately 140 institutions of higher learning, helping to partially offset the approximate $1 trillion tax cut that corporations would enjoy under the new tax code. In essence, the bill would then serve as a form of income redistribution, from the coffers of the universities that place America at the forefront of higher education to the coffers of large corporations. We believe that the money can be used for greater good at institutions of higher learning, and therefore believe that their financial well-being should be prioritized over that of corporations, at least in this situation.
Another more peculiar rationale—held by Representative Tom Reed, a Republican whose district includes Cornell University—is that this measure would obligate universities to redirect their money toward important matters such as tuition assistance and encourage them to reduce rampant tuition expenses. Though we too believe in affordable higher education and that universities should not just hoard money, we struggle to see how tighter budgets would result in decreased expenses for students attending these universities. We anticipate quite the contrary: Universities would be tempted to shift the costs onto students, thereby decreasing accessibility and exacerbating student debt.
However, as adverse as this plan’s effects would be on Harvard, even greater concern is needed for those colleges and universities that are well-endowed enough to be taxed by this legislation but that lack the resources to weather it. Taxing these universities’ endowments at the expense of tax breaks for corporations will hamper research, teaching, and financial aid in ways that will ultimately provide less for the economy and society at large than more robust higher education.
University President Drew G. Faust, to her credit, has been vocal in her opposition to the Tax Cuts and Jobs Act. Ultimately, whether or not it will pass lies in the hands of the federal government. Nevertheless, in the event that the plan is implemented, Faust—and her imminent successor—can directly set Harvard’s response to this lost revenue. In doing so, we call on them to ensure that this development will not adversely affect financial aid at the College. Harvard must uphold its commitment to socioeconomic diversity, regardless of national politics.
This staff editorial solely represents the majority view of The Crimson Editorial Board. It is the product of discussions at regular Editorial Board meetings. In order to ensure the impartiality of our journalism, Crimson editors who choose to opine and vote at these meetings are not involved in the reporting of articles on similar topics.
Faust Calls Republican Tax Plan ‘Blow at the Strength of American Higher Education’
Hindering Higher EducationWe are extremely disappointed with this provision of the House’s tax plan. It disproportionately harms graduate students across the country who contribute knowledge, teaching, and labor to our educational institutions.
End the Endowment TaxThe endowment tax is a calculated disregard for the important role of research in American society at a time when even facts are under constant attack by our leaders.
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Gonzalez Proposes Endowment Tax that Would Cost Harvard Half a Billion Per Year