Harvard President Drew Faust is “deeply concerned” about the 1.4 percent tax on net investment income that is part of the new tax law. This year, such a tax might have cost the university about $43 million.
Harvard’s endowment stands at 37.1 billion, having returned a disappointing 8 percent in fiscal year 2017. The disappointing return notwithstanding, that was $1.4 billion more than the prior year.
But the new tax, which affects only institutions that have endowments in excess of $500,000 per student may be, as a group of lawmakers quoted in the Harvard Gazette put it, a “serious threat to higher education institutions and their ability to provide need-based financial aid to their students.”
In fiscal year 2016, Harvard raised $1.19 billion. Still, the new tax, the Gazette tells us, could lead to “slashing funds to programs such as financial aid.”
Did I mention that the tax might have cost Harvard 43 million dollars this year? That’s more than 10 percent of the $411 million of income Harvard expects from continuing and executive education in 2017. Perhaps more alarmingly, it is half of the 100 million Harvard spent to build Tata Hall, which houses the executive education program. Earlier, executives had to live and take classes in other buildings, which is not the same as being homeless, but close.
According to the Harvard Crimson, the six highest-paid executives of the Harvard Management Corporation pulled in $53.4 million in 2015. Shall I go on?
I love Harvard, its propensity toward social engineering and disrespect for freedom of association notwithstanding. Harvard is a big employer, provides a wonderful education, and brings together some of the world’s best minds. It has a generous financial aid policy and does better than other Ivy League Colleges at bringing in students in the bottom 20 percent.
But let’s face it, according to one study, the median family income of a Harvard student is $168, 800. It may be true that higher education is “one of the few reliable ways for Americans to climb the economic ladder,” but the impact of a loss of 43 million of Harvard’s dollars on the American dream will not be great. I don’t want to overestimate any one metric (Harvard does quite well on some measures of what colleges do for low-income students), but consider the New York Times Upshot’s overall mobility index, representing “the likelihood that a student at Harvard moved up two or more income quintiles” after graduation. Harvard ranks 1,991st of 2,137 colleges and universities; a little behind the Olympian Academy of Cosmetology.
Yes, of course, this low mobility ranking reflects the fact that the vast majority of Harvard’s student are already near the top. Harvard ranks much better, number 42, when it comes to the prospect of a student from the bottom quintile, if he or she should make it to Harvard, getting into the top quintile. But the importance of Harvard and institutions like it to American social mobility should not be exaggerated.
Harvard’s suggestion that a 1.4 percent tax on the investment return from its $37 billion endowment is a significant threat to higher education is, to say the least, tone-deaf. Please, Harvard, for the sake of other colleges and universities that are not invulnerable to public opinion, just enjoy the 6.6 percent or so of all U.S. higher education endowment resources you sit on and keep your mouth shut.