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Saturday, December 23, 2017

Trump taxes Harvard

Bwa ha ha.

Under the Tax Cuts and Jobs Act, Harvard will have to pay taxes next year on that $37 billion endowment it has.

For centuries, Harvard has solicited tax-exempt donations from the wealthy under the guise of funding the university. But instead of just building buildings or covering operating costs, Harvard invests the money, and the money has piled up.

That's good for the people who get paid to invest the money.

But was that the intention of the donors?

While the university sits on $37 billion, undergraduate students are paying $63,025 a year for tuition and room and board.

Republicans decided to tax Harvard's earnings on the endowment. The howling is long and loud.

From Politico:
Under the bill headed to President Donald Trump’s desk the most well-to-do private universities would have to pay a 1.4 percent tax on earnings from their endowments, which are largely built on donations from prosperous alumni and enhanced by investments. Although scrutiny of wealthy college endowments has grown in Congress in recent years, the reality of the new tax has left higher-education leaders reeling.
Any private university with endowments worth $500,000 per student or more would have to pay a tax of 1.4 percent on the endowment's earnings. Depending on how the numbers are run, higher education groups estimate that about 30 colleges would be subject to the tax. The Joint Committee on Taxation has said it expects the tax to raise a hefty $1.8 billion over the next decade.
That was written before Trump signed the bill.

Harvard is sitting on more than a half-million dollars per student, and it dares complain about a 1.4% corporate income tax?

Every other corporation in America is paying 15 times that under this new law. That's down from 35%.

Of course thousands of tax-exempt corporations exist, and most of them liberal and pushing a Marxist agenda while refusing to pay taxes to support their Marxism.

University of Texas at Austin President Gregory Fenves told Politico: "Once the precedent is set ... it may start out small, but over time, it could grow."

I hope so.

Karin Johns, director of tax policy for the National Association of Independent Colleges and Universities, told Politico: “It’s hard for our colleges to prepare for it. We’re going to have to wait and see. It’s really just more of a punishment because they don’t like our sector.”

What's so hard to prepare for? Harvard and the rest are making millions each year and banking it. Just take the money out of that savings account. After all, the university already pays fees to the Harvard Management Company. All the colleges pay endowment managers.

And Richard Vedder of the American Enterprise Institute said the college endowment managers do a lousy job.

Vedder wrote:
Modern managers of university endowment funds have apparently thought they were some sort of special human beings – smarter than the rest of us, possessing special clairvoyant powers. They convinced their bosses of that too in some cases, receiving millions of dollars of annual payments from their schools for their alleged supernatural ability to forecast changing asset prices. Investing in ordinary stocks and bonds became very uncool. In fiscal year (ending in June 30) 2005, 80% of endowments were in stocks and bonds, but by 2016 only 43% were, as cooler, allegedly smarter “alternative strategies” absorbed a majority of endowment money. And colleges paid royally to get the best advice on private equity funds, venture capital projects, derivative trading, hedge funds, and other relatively exotic, high risk forms of investing.
The results have been a disaster. If colleges after 2005 had kept to the traditional model of putting at least 80% of their money into stocks and bonds, their endowments today would be at least $100 billion higher, by my back of the envelope estimation. From information provided me by an industry insider, from 2006 to 2016, universities that were 100% invested in a S and P 500 stock index fund (or actual stocks mimicking the fund) would have earned an average annual total return on the investment of 7.42%; those invested 100% in 10 or 15 year U.S. treasury bonds would have earned 7.39%. In reality, U.S. university endowments earned a paltry 5% annually on average. The flight to alternative investments has been a disaster, and/or investment managers are doing a horrible job of picking stocks and bonds. I think it more the former than the latter.
Harvard is basically accumulating this money to be accumulating the money, and to pay someone to manage the money that it is accumulating just to be accumulating the money.

From the Harvard Gazette:
Graduate students across the nation dodged a financial bullet Wednesday, even as dozens of prominent universities took a hit in the form of a new tax on university endowments and other investment income. The tax will weaken financial aid, faculty and research initiatives, and other institutional programs that support students, professors, and medical and scientific studies.
Harvard President Drew Faust, who worked against the graduate and endowment taxes, warned that the new endowment tax represents an unprecedented attack on the tax-exempt status of nonprofits and charities because it taxes, for the first time, income for such an institution’s core mission — in this case, education.
Maybe that argument would have worked 40 years ago, but college campuses have allowed themselves to become bastions of anti-American and Marxist propaganda. The university industry has traded its mission of education for one of indoctrination.

But that argument is also a falsehood because this money is not going to education. It is going into the bank (figuratively speaking). Tax it.


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  1. "But instead of building buildings or covering operating costs, the money has piled up"

    Are you sure? Harvard has been aggressively expanding its campus across the Charles River into the town of Alston, and I would presume endowment money has been funding that construction. In any case, I thought the tax regulation already in place was that a non-profit like Harvard had to SPEND 5% of its endowment each year to keep the tax exemption on the endowment's income. Am I wrong?

    1. You are correct. I'll add the word just to clarify things.

    2. Actually the expansion into Allston (a section of the city of Boston) hasn't been going well. Harvard has spent a lot of money and doesn't have much to show for it so far. In fact, the next-to-last issue of Harvard magazine complained about the lack of money to keep Harvard going on all fronts (in particular, they don't seem to have done a good job with the $400mm gift for a school of engineering.) History is not going to treat Drew Faust well.

    3. Drew Faust,was photographed in a "Black Lives Matter T shirt

  2. Bwa ha ha ha, indeed.

    But why only 1.4%? -- T

  3. A 1.4% tax may not seem like much, but it's a symbolic gesture- a shot across the bow of the anti-American education industry. I expect to see much harsher (at times deliberately punitive) actions taken by the Trump administration towards universities in the future.

  4. Sitting on top of that kind of money and charging a tuition of $62K is a disgrace. That money should go to education. - GOC

    1. Schools like Harvard claim few students pay the full tuition and that a large majority of them get financial aid of some amount, which helps to ensure that any student admitted by the school can actually afford to attend. How true that is, I cannot say. There is clearly a lot of cost shifting going on beneath the surface, but where the student aid money goes from I haven't a clue.

    2. IOW they subsidize their own choices. The endowments and foundations are billion dollar slush funds.

      I say claim the money as a public good and resource and just take it. That's what they do to us whenever they are in power.

    3. The important thing is outfits like Harvard will have the opportunity to pay their "fair share".

  5. I bet they don't lay off any of their bloated administration or diversity "coordinators".

  6. And they advocate higher taxes for the rest of us. What about paying their fair share?

  7. My position is the whole "non-profit" is fake. The feds should eliminate the whole concept. If you don't want to pay income taxes, don't make any net income. Stuffing money into pillow cases or endowments or whatever is the definition of drawing profits.

  8. Conan O'Brien, a Harvard alum, said it best in response to Harvard continually asking him for money. 'We're Harvard. We don't need your money, We want your money."

  9. This comment has been removed by the author.

  10. Perhaps these "elite" universities should have tried not being so outright and aggressively hostile towards Republicans and conservatives. Maybe if they tried little things such as letting conservatives actually speak on their "elite" campuses ...

  11. Tax the RICH colleges and Universities.

  12. Yep. The real rich.

  13. University of Texas at Austin President Gregory Fenves told Politico: "Once the precedent is set ... it may start out small, but over time, it could grow."

    Who says intellectuals are stupid? Even this guy knows how taxes work. They rarely go down after they are instituted.

    1. Just like tuition. Once it goes up and the precedent is set, it grows.

  14. They will just add small colleges to their systems to increase the student numbers and get below $500,000.

  15. Universities have discovered that because of the student loan program, they can "stick it to" students by upping all costs while they merrily pay their faculty to embrace the far left.

  16. Congress reduced the amount non profits had to spend annually in the 80's when we were suffering from high inflation to a minimum of 5%. Over the years, the tax exempt agencies treat the 5% as the maximum they will spend. Congress needs to address this issue and set the minimum to 40%. Those endowment dollars circulating in the economy would be a constant economic stimulus. Universities are not the only one skipping taxes on their wealth. Why are wealthy families allowed to set up foundations that live on forever tax free? Their wealth needs to be spent as they direct after their passing for no more than fifty years, tax the remainder and return anything left over to the heirs. End the tax free racket.

  17. Donations are income to the university. Tax that income at income tax rates, as my income gets taxed.


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