Trump Ramps Up Harvard Feud With Threat to Tax-Exempt Status (3)

President Donald Trump escalated his administration’s fight with Harvard University by threatening its tax-exempt status after the school defied the government’s demands to change its policies in exchange for billions of dollars of federal funding.

“Perhaps Harvard should lose its Tax Exempt Status and be Taxed as a Political Entity if it keeps pushing political, ideological, and terrorist inspired/supporting “Sickness?” Trump posted on Truth Social. “Remember, Tax Exempt Status is totally contingent on acting in the PUBLIC INTEREST!”

Stripping Harvard’s tax-exempt status completely would deal a painful financial blow to the university. Harvard’s tax-exempt status affords the school a variety of benefits, such as not having to pay traditional property taxes on educational buildings. It can sell bonds that pay interest that’s exempt from federal taxes, which lures investors and helps lower borrowing costs. Additionally, alumni who donate money to the school can deduct the contributions, providing an incentive for donations. That’s especially crucial for Harvard, which received $528 million of current use gifts in fiscal 2024.

A Bloomberg News analysis estimated that Harvard’s tax benefits totaled at least $465 million in 2023.

Some 1,700 private colleges operate as nonprofits given their contributions to society. They receive that benefit as part of section 501(c)(3) of the tax code, which specifically mentions education as being a purpose that can receive the exemption. Harvard is registered as a nonprofit organization under that provision with the Internal Revenue Service.

America’s elite universities are increasingly in the spotlight for how they handle their vast wealth, particularly by Republicans who claim the schools are fostering progressive viewpoints at the expense of conservative ideas. Already, there are several bills in Congress that would also increase the endowment tax, which was put in place under the first Trump administration. One proposal would raise the 1.4% tax to 21%.

“This is a huge threat to the current financial setup of most universities,” said Evan Horowitz, executive director for Tufts University’s Center for State Policy Analysis. “They rely on their tax exempt status to make their books balance. and if the feds wanted to turn a dial on this, it would be to increase the tax on endowments. That cuts right to the heart of university finances.”

On the campaign trail, Trump promised “taxing, fining, and suing excessively large private university endowments” in response to concerns over antisemitism and to endow a new university.

US Representative Jason Smith, a Missouri Republican who leads the powerful House tax-writing committee, in 2024 demanded that Harvard and other schools detail the disciplinary actions they’ve taken in response to antisemitism on campus. He noted the schools enjoy “generous benefits through the U.S. tax code.”

Tax-Exempt Status

The IRS, which is supposed to enforce federal tax laws independent of partisan pressure, determines whether a non-profit loses the status. Organizations can lose their status if they’re involved in political campaign activity or are heavily involved in lobbying. Groups can also lose their designation if they have excessive income unrelated to their core mission or fail to file annual returns with the IRS.

The government’s antisemitism task force said late Monday that it would freeze at least $2.2 billion of multiyear grants after Harvard’s rejected a set of demands from the administration. It has also frozen money for Columbia, Princeton, Northwestern and Cornell. The government had earlier said it was reviewing about $9 billion of grants and funding to Harvard.

Harvard, the oldest and richest US college with a $53 billion endowment, has long been a target of Republicans who have accused it of liberal bias and been critical of its hiring and admissions policies. But it has become a flashpoint for the White House after campuses were roiled by pro-Palestinian student protests after the Oct. 7, 2023, attack by Hamas on Israel and the Jewish state’s retaliatory response in Gaza.

Harvard had previously said it would work with the administration to address antisemitism on campus, such as tightening disciplinary procedures. But President Alan Garber on Monday struck a defiant tone, arguing that the government was threatening to cross red lines regarding academic freedom and interference in higher education.

Garber said the administration expanded its terms to include the ending of diversity, equity and inclusion programs, changes to its admissions and hiring and curbs on the “power” of certain students, faculty and administrators because of their ideological views.

“It makes clear that the intention is not to work with us to address antisemitism in a cooperative and constructive manner,” Garber wrote on Harvard’s website. “Although some of the demands outlined by the government are aimed at combating antisemitism, the majority represent direct governmental regulation of the ‘intellectual conditions’ at Harvard.”

White House Press Secretary Karoline Leavitt disagreed with the assessment.

“Harvard has not taken the president or the administration’s demands seriously,” she said. “All the President is asking, don’t break federal law, and then you can have your federal funding.”

Leavitt also raised the issue of Harvard’s endowment. “Why are the American taxpayers subsidizing a university that has billions of dollars in the bank already,” she asked.

The school didn’t respond to a request for comment on Trump’s post.

(Updates with White House comment in penultimate paragraph.)

--With assistance from Laura Davison, Sri Taylor and Hadriana Lowenkron.

To contact the reporters on this story:
Janet Lorin in New York at jlorin@bloomberg.net;
Amanda Albright in New York at aalbright4@bloomberg.net

To contact the editors responsible for this story:
Pierre Paulden at ppaulden@bloomberg.net

Brendan Case, Danielle Moran

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