"Mr. Rostenkowski seems to be telling people--say, from Eastern states where they are most concerned about these things [both the deductibility question and the bond issue]--that he will take care of them on state and local deductibility if they support this. We lost some votes that way," said Thomas Head, a senior tax lobbyist at the Association of American Universities.

Bruce F. Davie, the Ways and Means Committee's chief tax economist, said the cap is necessary because tax revenue lost to the bonds amounts to an unvoted subsidy. "The federal government didn't make a conscious decision to give Harvard $30 million a year," Davie said.

Despite their large endowments, major universities invest rather than spend their gifts, Davie said. "Harvard keeps the money [it gets from donors] and invests it at 12 percent, and borrows at 8 percent in the tax-exempt bond market rather than use the money people gave them," he said.

But O'Brien criticized Davie's interpretation of how endowments should be used. "Bruce's analysis misses the point that monetary gifts are typically restricted" in their use by the University, O'Brien said. "That money is not fungeable [able to be used for any purpose]."

Shattuck and Head said that while the cap is likely to stay in any final tax reform bill, they would continue lobbying efforts.

The Senate has moved much slower on tax reform and has yet to develop a working draft proposal