Taxing Times at Harvard

New federal taxes will cost Harvard $50 million 

By Deirdre Fernandes, Boston Globe, October 24, 2019

Harvard University is preparing to write a check to the federal government for an estimated $50 million in new taxes, including one for the first time levied on its massive endowment. The anticipated cost of the new taxes, approved by President Trump and the Republican-controlled Congress in late 2017, was included in Harvard’s annual financial report, released Thursday. Even for Harvard, with its $41 billion endowment, the tax payout represents a sizeable sum. The university estimates that the tax burden accounts for about 1 percent of its operating revenue.

“Viewed in the context of maintaining affordability, less money is now available for the university to maintain financial aid, which totaled $193 million for undergraduates this past year,” Thomas Hollister, Harvard’s vice president of finance co-wrote in a statement included as part of the annual report.

Harvard is still awaiting final details from the Internal Revenue Service about how the taxes will be calculated, but the first payments are scheduled to go out by the end of November. The expense must be reported in the year it occurred, which in this case is for the fiscal year that ended on June 30.

Harvard’s federal tax bill includes $37.7 million due to the endowment tax; the remaining $12.1 million comes from other new taxes on universities that were part of the 2017 tax reform package. Harvard and other endowment-heavy institutions continue to lobby Congress to reverse the endownment tax, which they argue is unfair for nonprofits to pay and will ultimately reduce how much they can spend on students.

The federal government expects this new 1.4 percent tax on university investment income will affect fewer than 40 institutions; it applies only to schools that enroll more than 500 students and have endowments worth at least $500,000 per student. The schools expected to take a hit include many of the country’s wealthiest, including Yale University and Amherst College...

Harvard officials said for the first time this year they have asked the individual colleges and departments to start planning for a possible recession. Similar to stress tests, the US Federal Reserve has required banks to ensure they can withstand a severe economic downturn. Harvard has asked its budget managers to consider how they would navigate a financial disruption.

“The prospect of a long-running period of economic expansion coming to an end is very real,” Harvard President Lawrence Bacow wrote in the financial report, highlighting other concerns including the endowment tax and uncertainty about federal research funding. “While our financial resources remain strong, we, along with all of our colleagues in higher education, must be conscious of the challenges in our current climate.”

Full story at https://www.bostonglobe.com/metro/2019/10/24/new-federal-taxes-will-cost-harvard-million/jLtxaBrcnIT9SAGQzLWpEP/story.html