Harvard faces new threat of state tax on $51B endowment

Harvard University is bracing for two bills in its home state of Massachusetts this year that would target the school’s massive $51 billion endowment and policy of admitting legacy applicants.

One would hit Harvard and 10 other private colleges that have more than $1 billion in assets, including the Massachusetts Institute of Technology and Williams College, with an annual 2.5% excise tax to fund state universities. 

A second bill would charge a fee on rich colleges that give legacy applicants a leg up in admissions and pass along the funds collected to community colleges.

While the state bills are coming from Democrats, Harvard is facing pressure mostly from Republicans on the federal level. The school is under investigation by two congressional committees for the way it has handled antisemitism on campus in the wake of the Oct. 7 attack on Israel by Hamas. 

The federal scrutiny could bring new interest in the Massachusetts bills about Harvard’s tax treatment, said state Representative Simon Cataldo, a Democrat who introduced the legacy admissions bill last year.

“The shortcomings of how some prominent universities have addressed antisemitism has led to scrutiny of their practices in many different areas, including the fact that taxpayers are in essence paying for preferential treatment on billions of dollars they hold in their endowments,” Cataldo said. “I say that as a Jewish legislator who is profoundly concerned about antisemitism on campus.”

Harvard didn’t respond to a question asking for comment about the bills.

Harvard, the oldest and richest college in the U.S., has long been a target for its immense wealth. The House Ways and Means Committee is investigating the tax-exempt status of Harvard, MIT and two other universities. 

The preferential tax treatment given to Harvard adversely affects the state coffers, Cataldo said. 

“Taxpayers and the public at large are rightfully looking at the university’s conduct and thinking maybe more closely than we have in the past about how much taxpayers are paying for them,” Cataldo said.

The legacy admissions bill would target Harvard, Williams and a half-dozen other colleges that give special preference to the children of alumni. The bill uses a formula determined by endowment value per student to determine fees based on a sliding scale. The money would go to a trust to fund community colleges. Harvard would be assessed about $100 million annually, Cataldo said. 

The excise tax bill on endowments would distribute wealth to offset tuition at public universities and could be used for universal pre-K, said Representative Natalie Higgins, a Democrat and a lead sponsor of the measure. It would generate $2 billion annually based on 2022 endowment values, with Harvard paying the most, $1.2 billion, followed by MIT with almost $600 million, according to sponsors.

“These institutions have benefited from a lot of protection and tax breaks, and they’ve hoarded a lot of wealth for centuries,” said Higgins. “Not every student in Massachusetts has a shot in going to MIT or Harvard. But their endowments could make sure that all public higher education students at all 29 public colleges and universities could attend for free.”

Even before the antisemitism drew attention to the campus, Harvard was under scrutiny for its legacy admissions policy, especially after the Ivy League university lost a Supreme Court case over race in college admissions in June. The U.S. Education Department is investigating whether Harvard discriminates by giving preference to undergraduate applicants with connections to alumni, after a group filed a complaint in July. 

The federal government successfully taxed more than three dozen private universities as part of the Republican-led tax cut in 2017. The colleges, including Harvard, Yale and Princeton universities, have been lobbying to remove it since the 1.4% levy on net investment income passed. The tax helps fund corporate tax cuts.