Paul L. Caron

Friday, November 16, 2018

Harvard Braces For $40-$50 Million Annual Endowment Tax

Harvard Crimson, Bacow Met With U.S. Treasury Representative to Discuss Endowment Tax Guidance:

University President Lawrence S. Bacow recently met with a U.S. Treasury Department official as the government prepares final regulations for taxing university endowments, Bacow said in an interview last month.

Harvard’s endowment, valued at $39.2 billion, qualifies for taxation under the new tax codes Republican lawmakers passed last year. The University's endowment was previously exempt from taxes because the school is a non-profit entity.

The University’s financial report released in October estimates that the tax will cost Harvard $40 million to $50 million annually. Harvard will have to pay the endowment tax for the first time on returns from this fiscal year, which ends in June 2019. ...

Experts have said that university endowment managers may change investment strategies to reduce tax burden, including considering when to sell assets. “It can affect both your choice of what to invest in, and also probably more importantly for Harvard, how often to sell,” Georgetown Law Professor Brian D. Galle ’94 said. “We only calculate the amount of taxable gain or loss on your investments in the year in which you sell or otherwise get rid of the property.”

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@UE - It does seem like a bit of a difference comparing Harvard, with <30K students, to even the smallish church you mention with 13M members worldwide. The tax is, wisely, levied based on being over a per-student threshold. I don't know if any major church would come close to Harvard's assets/person level.

Pretty much any church, especially the one you mention, is happy to take on new parishioners who will share in those assets, also slightly different from Harvard.

I agree on the megachurches where it is clear someone is getting rich out of the deal, but I don't know how to draw a line separating the two.

Posted by: Glenda | Nov 19, 2018 7:57:38 AM

Sitting on billions, charging an arm and a leg for tuition, meanwhile millions are struggling to pay off student loans.

Posted by: Gerry | Nov 19, 2018 7:40:28 AM

This is the usual GOP Modus Operandi. Pretend to be in favor of "tax cuts" then use taxes as a political weapon to reward cronies and punish dissidents. They run the U.S. the way Peron ran Argentina.

Posted by: Priorities | Nov 18, 2018 9:45:28 AM

@Unemployed Northeastern

There are huge constitutional concerns with taxing churches. There are none with taxing endowments. There is zero evidence that the Mormon church uses its assets for other than the furtherance of religious purposes. Sorry if you don't like their religious purposes. Go back and tell the drafters of the U.S. constitution.

Posted by: dlmpost | Nov 18, 2018 9:38:15 AM

@Mike Livingston,

There are a lot of megachurches that are barely disguised grifts; when is the GOP going after their tax exempt status? For that matter, there are multiple churches in the US with more assets than Harvard; the Mormon Church, for example, controls more than $40 billion in assets. And of course this ethos you espouse of going after wealthy entities that act like business is diametrically opposed to standard GOP tax orthodoxy but whatever. We all know this is about whipping the base into a frenzy (while also handicapping American institutions that generate inordinate economic value).

Posted by: Unemployed Northeastern | Nov 17, 2018 12:50:34 PM

Good. It is time they pay their fair share. As some like to say, this is a common-sense reform.

Posted by: anymouse | Nov 17, 2018 9:14:23 AM

I think the next stage will be to examine the tax exemption of schools like Harvard that are, according to recent testimony, being run more like businesses than genuine public assets

Posted by: Mike Livingston | Nov 17, 2018 3:16:30 AM

Good, it's working as planned.

Posted by: Champ | Nov 16, 2018 11:03:08 AM