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Even after the Democratic takeover of the U.S. House of Representatives in this month’s midterm elections, Harvard may still contend with a tax on its multibillion dollar endowment for years to come.
A congressman from Harvard’s state will almost certainly lead the committee charged with overseeing tax policy once Democrats officially take power in January — but his ascension might not bring about the policy overhaul the University has hoped for.
The endowment tax, enacted as part of the 2017 Republican-led Tax Cuts and Jobs Act, requires Harvard and other institutions with endowments greater than $500,000 per student to pay a 1.4 percent excise tax on endowment returns. The tax is set to take effect for the 2019 fiscal year — and according to University estimates, it will likely cost Harvard between $40 million and $50 million per year.
Harvard sought to prevent the tax for years before it became law, and the University has spent the year since its passage lobbying for its repeal. In March, former University President Drew G. Faust joined 48 other higher education leaders in penning a letter to congressional leaders to express “deep objections” to the federal endowment tax.
University President Lawrence S. Bacow traveled to Washington, D.C. soon after taking office in July to urge legislators to end the tax. In a September 2018 interview, Bacow said the tax will increase the cost of higher education and threaten funds available for financial aid.
In an interview last month, Bacow, who said he was “talking to people on both sides of the aisle” about the issue, said his future lobbying efforts would depend on the results of the midterms and new legislation from the incoming Congress.
“Depending upon how the elections turn out, I may be speaking to different people because there may be different people in Congress,” Bacow said. “There will certainly likely be different chairs of major committees, so that’s likely to change.”
After the midterms delivered Democrats a sizable majority in the House, Congressman Richard E. Neal (D-MA) — a veteran Democrat representing south central Massachusetts — is now poised to become chair of the House Ways and Means Committee. The post will make him the new face of tax issues on Capitol Hill, and he has already begun outlining his priorities.
Among them: chipping away at the Republican tax bill. Neal told CQ Magazine in an April interview that repealing the tax law wholesale will prove difficult with a Republican-controlled Senate and White House.
“Experience tells me it’ll be hard to repeal the law, given the Republican president,” Neal said. “I think that more likely you would try to shape it to the realities of the day.”
Instead, Neal said, Democrats will focus on eliminating smaller provisions of the law. In the April CQ interview, Neal indicated the endowment tax could be one of the portions Democrats attempt to reverse.
More recently, however, experts say the calculus within the Democratic party may have changed. Democrats largely oppose the endowment tax and prominent party leaders, including U.S. Sen. Elizabeth Warren (D-MA), have spoken out against it. But not all Democrats share that priority — this year, a Democratic gubernatorial candidate in Neal’s own state campaigned in favor of a tax on university endowments.
Democratic candidate for Massachusetts governor Jay Gonzalez proposed his own 1.6 percent endowment tax in September that would have cost Harvard over $500 million per year. Gonzalez lost his election bid in November to incumbent Governor Charles D. Baker ’79, who garnered more than two-thirds of the vote.
Experts say these rifts among Democrats over the endowment tax issue may mean it will take lower priority when Neal ascends to the committee’s helm.
Boston College political science professor David A. Hopkins ’99 said the issue of the endowment tax splits Democrats between those who are sympathetic to universities and those who want to use the revenue to redistribute wealth. Gonzalez, for instance, proposed using the funds generated from a state-level tax on Massachusetts universities’ endowments to bolster public education in the state.
“There's a debate that I suspect has the potential to be a lively one, just in terms of what the correct liberal position should be on a policy question like that,” Hopkins said. “If you're a Democratic leader, especially if it's to some degree a moot debate anyway in terms of potential for actual policy change, I think opening that debate is something you'd be pretty reluctant to do."
A spokesperson for Neal did not respond to requests for comment.
Experts say Neal will likely face pressure to undo the tax from other Massachusetts universities. The state alone contains six institutions of higher education affected by the tax — including Williams College, which is located in the district Neal represents.
But experts also urged caution in lobbying, emphasized that Neal and even universities like Harvard may not want to be seen defending elite institutions with hefty endowments. Harvard’s endowment in the 2018 fiscal year was valued at $39.2 billion after returning 10 percent on its investments.
Harvard Law School visiting professor and corporate tax specialist Howard E. Abrams said he expects any repeal of the endowment tax to come from a revenue-neutral bill, an act which pairs a revenue-losing measure like a possible repeal with a provision that raises money through the taxation of other sources.
Abrams warned “negative spin” might come out of Harvard lobbying against the tax and said he thought any lobbying will likely be conducted “in a very creative and relatively quiet way.”
“In a revenue neutral bill, we've got to raise taxes on somebody,” Abrams said. “Does Harvard want to be in that position and be Harvard, with the highest endowment of any university in the world, [who] wants to raise taxes on other people? I'm not sure they want that PR.”
Kennedy School public policy lecturer David C. King said a repeal on the endowment tax would be “very bad politics” for Neal.
“It makes no sense to be seen publicly allied with the elite of the elite, while the Democratic party is trying to position more believably as focused on the interests of the middle class of America,” King said.
Still, Bacow said he continues to make the case to lawmakers that the endowment tax is “lousy public policy.”
Speaking about Gonzalez’s proposal in a September interview, he said “I’m all in favor of additional support in the state for K-12 education…but I don’t understand why taking scarce resources away from colleges and universities which have been entrusted to them to help support your education represents good public policy.”
Asked whether Bacow plans to meet with Neal to push this message, University spokesperson Melodie Jackson declined to comment.
—Staff writer Alexandra A. Chaidez can be reached at alexandra.chaidez@thecrimson.com. Follow her on Twitter @a_achaidez.
