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Harvard Says Endowment Tax Would Have Cost $43 Million This Year

Harvard University would have had to pay $43 million for 2017 under the tax bill that’s awaiting Trump’s signature.

Harvard Says Endowment Tax Would Have Cost $43 Million This Year
Harvard banners hang outside Memorial Church on the Harvard University campus in Cambridge, Massachusetts, U.S.(Photographer: Michael Fein/Bloomberg)

(Bloomberg) -- Harvard University would have had to pay $43 million for fiscal 2017 under the tax bill that’s awaiting President Donald Trump’s signature.

The school based that estimate on the 1.4 percent tax expected to take effect in 2018 for the richest private colleges, a Harvard spokesman said Thursday. The Massachusetts Institute of Technology said the new law will cost it $10 million a year.

Harvard’s $37.1 billion endowment, the world’s biggest, gained 8.1 percent in the fiscal year ended June 30, underperforming peers.

“I am deeply concerned that the adoption of an unprecedented excise tax on charitable organizations that targets certain colleges and universities will weaken our ability to support students and research,” Harvard President Drew Faust said in a statement.

About 30 colleges and universities, including Harvard, Yale University and smaller liberal arts schools such as Amherst and Williams, are expected to pay the tax on investment gains. Williams, with a $2.6 billion endowment, said it would pay an estimated $2.5 million annually, based on a 7 percent return.

Stanford University, which has a $27 billion endowment, said in a statement it would be subject to the tax, without giving an estimate.

Affected schools have at least 500 students and more than $500,000 in endowment per student.

MIT will pay an estimated $10 million a year based on the endowment’s average investment returns over the past five years, officials said in a statement. The school has a $15 billion endowment and is among the best-performing funds in higher education.

MIT will try to keep tuition and fees “under control as possible,” MIT President Rafael Reif said Thursday in a taped interview with Bloomberg TV’s Tom Moroney. “It’s a big hit. Basically, the government’s giving us a budget cut.”

“But it means less money for all the things we’re expected to do,” Reif said. “Less money for financial aid. Less money for support for our grad students. Less money for research. Less money for innovation and education. I mean, it is a very surprising move.”

--With assistance from Janet Lorin and Tom Moroney

To contact the reporter on this story: Michael McDonald in Boston at mmcdonald10@bloomberg.net.

To contact the editors responsible for this story: Mary Romano at mromano6@bloomberg.net, Peter Eichenbaum

©2017 Bloomberg L.P.