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First they cut our research funding. Then, they revoked student visas. Now, the Trump administration is coming for Harvard’s endowment.

Let’s be clear: Increasing the tax on Harvard’s endowment — or worse, stripping our tax-exempt status entirely — would utterly cripple this University. It’s not hard to see why; income from the endowment covers over a third of Harvard’s operating expenses each year, so jeopardizing these funds means less money for research, salaries, and financial aid.

Of course, everyone agrees that an endowment tax hurts universities. But it’s quite a bit more difficult to conceptualize exactly what the scope and scale of these effects actually are, and I’ve found that most analyses, even ones in these pages, substantially understate the financial consequences of such a tax.

It turns out that many of the tax proposals floating around would actually imperil the University’s financial future far more than even the recent funding freezes. To see why, it helps to understand exactly what an endowment is, and how a tax on it would operate.

At its core, Harvard’s endowment functions like an investment fund. The Harvard Management Company invests a pool of money in a collection of stocks, bonds, and other securities that, hopefully, appreciate in value. In the past few decades, we’ve done fairly well for ourselves, averaging around 9 percent annual returns on our investments.

Each year, Harvard disburses a fraction of the endowment for current use. The exact percentage fluctuates, but it typically hovers around five percent of the headline value of the endowment.

Crucially, it’s this annual distribution — the “draw” — that we really care about, not the endowment total. The draw is the cash flow that Harvard can spend each year, which funds research output, instruction, and the like. As a result, when evaluating the impact of an endowment tax, we shouldn’t think about the endowment as a pot of money, but rather as a continuous stream of annual disbursements.

In economics we measure the value of these sorts of multi-period cash flows in terms of “net present value” — a fancy term that describes the process of adding up these annual disbursements while recognizing that dollars this year are worth more than dollars next year.

After all, it’s (almost) always better to receive money now rather than later. Consider the following example: Imagine you have a choice between receiving $1,000 today or $1,000 a year from now. With $1,000 today, you could invest it in something extremely safe — say, a government bond yielding four percent interest — and spin it into $1,040 by the end of the year. Or alternatively, you could use that $1,000 to pay down expensive debt. In both cases, you are better off than if you had waited to receive the money.

That four percent figure is known as the “discount rate,” because it tells you how much to shrink the value of each future dollar so that it reflects its true worth in today’s terms. You may owe your friend $104 a year from now, but you only need $100 in hand today to meet that obligation. In other words, we have “discounted” $104 by four percent.

We can apply a similar process to assess the “net present value” of all future cash flows that Harvard will draw from the endowment — both for the current system, in which Harvard must pay 1.4 percent of its net investment income each year in federal excise taxes, and for a suite of proposals in Congress that would increase the tax rate significantly.

In Harvard’s case, we can assume that the draw rate is about five percent and the discount rate is approximately nine percent — because, according to historical returns, every $100 in the endowment today turns into about $109 next year.

I’ll spare you the math, but with these figures, the net present value of Harvard’s endowment, under the current tax structure, comes out to about $49 billion.

In contrast, if the tax were 10 percent rather than 1.4 percent, as has been proposed by Rep. Mike V. Lawler (R-N.Y.), the net present value would decrease by $7 billion.

And, if the tax were raised to 35 percent, as has been proposed by Vice President JD Vance, the net present value would decrease by a whopping $18 billion!

In other words, Vance’s proposal would wipe out nearly 40 percent of the endowment’s value. To put that into perspective, the current $2.2 billion research funding freeze — though equally absurd — would only decrease the net present value of the University’s future cash flows by about four percent.

Fundamentally, Harvard isn’t a corporation — and so it shouldn’t be taxed like one. We don’t issue equity, and we don’t have shareholders. Unlike a board of trustees, whose fiduciary duty is to maximize returns for its investors, the mission of the Harvard Management Company is to disburse funds as efficiently as possible. A hedge fund accumulates; a university spends.

As I’ve written previously, university spending generates enormous social good. That’s why, for generations, the government has subsidized our research. Now, in a complete about-face, the Trump administration wants to punish us for it.

Julien Berman ’26, a Crimson Editorial editor, is an Economics concentrator in Adams House.