Saturday, May 3, 2025. Annette’s Roundup for Democracy.
Harvard Day at the Roundup.
Trump’s Latest Threat against Harvard.
White House vs. Harvard: President Trump said on his social media site on Friday that his administration planned to revoke Harvard University’s tax-exempt status, saying, “It’s what they deserve!” Mr. Trump did not say when this would happen, but he has been threatening Harvard’s tax exemption in the weeks since the school rebuffed his administration’s demands for policy changes.
Federal law prohibits the president from “directly or indirectly” telling the I.R.S. to conduct specific tax investigations. (New York Times)
What is Tax Free Status and can Trump revoke it from Harvard?
The university, like many colleges and charities, is exempt from federal income and property taxes, saving it billions of dollars. President Trump has questioned whether it should enjoy that status.
Harvard, like many American colleges and charities, enjoys a federal tax exemption, a status granted by the Internal Revenue Service that allows the wealthy Ivy League university to forgo paying perhaps hundreds of millions of dollars a year in taxes.
The I.R.S. is now weighing whether to revoke Harvard’s tax exemption, according to three people familiar with the matter, as the Trump administration demands that the university make changes to its hiring, admissions and curriculum policies.
President Trump has called publicly for Harvard to pay taxes, and his administration cut $2.2 billion in federal funding to the university after it refused to submit to the administration’s pressure campaign. He raised the issue again on Friday, posting on his social media site: “We are going to be taking away Harvard’s Tax Exempt Status. It’s what they deserve!” He did not offer details.
Here’s what to know about tax-exempt status:
What is tax-exempt status?
Tax-exempt status allows an organization not to pay federal income and property taxes under Section 501(c)(3) of the Internal Revenue Code, which means that donations to the institution are tax-deductible.
Eligible organizations include those whose purpose is “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition and preventing cruelty to children or animals,” according to the I.R.S.
The I.R.S. places a number of restrictions on any organization claiming tax-exempt status. Under the Internal Revenue Code, none of the organization’s earnings can go to a private shareholder or individual; the organization is limited in its ability to influence legislation and it cannot participate in a campaign or support political candidates.
Can the I.R.S. revoke tax-exempt status?
The I.R.S. determines which organizations meet the criteria for tax-exempt status. The agency has at times revoked tax-exempt status, including after audits that found political or commercial activities that violated the terms of eligibility.
In the past, the I.R.S. has challenged the tax exemptions of educational and other institutions under both Republican and Democratic administrations, according to Gowri Krishna, a professor at Fordham University School of Law who specializes in nonprofit law.
In one well-known example, Bob Jones University in South Carolina, a fundamentalist Christian institution that had banned interracial dating, lost its tax-exempt status over its discriminatory policies in a case that the Supreme Court ruled on in 1983. The university had claimed that the I.R.S. had violated its religious liberty. The university lifted the ban in 2000, and said in 2017 that it had regained its tax-exempt status.
But it is rare for the I.R.S. to revoke the tax-exempt status of an educational institution. Tax laws also provide organizations the right to appeal an adverse decision by the agency.
The agency says that it receives complaints claiming abuse of tax-exempt status every year from the public, members of Congress, state and federal government agencies and internal sources. But federal law bars the president or other senior officials of the executive branch from directly or indirectly requesting that the I.R.S. investigate or audit specific organizations.
Harrison Fields, a White House spokesman, said that the I.R.S. began scrutinizing Harvard before the president’s public call for Harvard to pay taxes.
In a statement issued in April, Harvard said that there was no legal basis for rescinding its tax status. Any attempt to take away Harvard’s tax exemption would be likely to face a legal challenge, which tax and legal experts expect would be successful.
“Harvard would argue there’s a violation of its free speech and academic freedom,” Ms. Krishna said. “I think it would be highly, highly unlikely that the government would win.”
What would happen if Harvard lost its tax-exempt status?
Harvard has said that losing its tax exemption would result in the reduction of financial aid for students, the abandonment of important medical research and the loss of other opportunities for innovation. [See further effects in One More Thing below].
Bloomberg News estimated in an analysis that Harvard’s tax benefits totaled at least $465 million in 2023. The university also indirectly benefits from the tax deduction that its donors receive from making contributions. In the 2024 fiscal year, Harvard reported that it had collected more than $525 million in donations that could be used immediately.
Rescinding Harvard’s tax exemption would also have “grave consequences” for higher education in general, the university said.
And an attempt to change Harvard’s tax-exempt status amid its dispute with the Trump administration would amount to a severe breach of the independence of the I.R.S., which was established to be insulated from political pressure. (New York Times)
Why do Harvard and other universities claim it?
Simply put, tax-exempt status saves money and can boost credibility. It can also help attract wealthy individuals seeking to donate large sums.
Institutions must apply to the I.R.S. for tax exemption, and a vast majority of universities do so, according to the Association of American Universities. This is because of their educational purpose, which “the federal government has long recognized as fundamental to fostering the productive and civic capacities of citizens,” the association says.
One more thing.
What else might taking away Harvard’s Tax-free status do
• Harvard could be taxed at a higher rate on its $50B+ endowment.
Federal Corporate Income Tax Harvard’s endowment is around $50 billion (as of 2024), and it earns an estimated $2–3 billion annually in investment returns.
If taxed as a corporation at the current federal corporate tax rate of 21%, and assuming $2.5 billion in net taxable income, Harvard would owe: → $525 million/year in federal income tax.
• Harvard could be taxed on its real estate holdings through State and Local Property Taxes.
Harvard owns a vast amount of real estate in Cambridge and Boston—millions of square feet—which is currently exempt from property tax.
Estimates of what Harvard would pay if fully taxed range from $50 million to $100+ million/year, depending on local rates. → ~$60–100 million/year in local property taxes.
• Donations may be affected as tax write-offs vanish.
💥 Breaking news last night.
Harvard University President Alan Garber fought back against President Trump’s renewed threat to revoke the school’s tax-exempt status, saying in an interview with The Wall Street Journal that the move would be “highly illegal” and “destructive to Harvard.”
“The message that it sends to the educational community would be a very dire one, which suggests that political disagreements could be used as a basis to pose what might be an existential threat to so many educational institutions,” Garber said.
Senate Minority Leader Chuck Schumer (D., N.Y.) on Friday asked the IRS inspector general to investigate whether Trump has violated the law and if the IRS has begun auditing nonprofits based on White House requests.
(Wall Street Journal.)
Why Harvard Can't Rely on Its Endowment
- Even with a $53 billion war chest, Harvard isn’t wealthy enough to cover federal funding losses, nor does it have that flexibility.
- The Trump administration has threatened to freeze billions of dollars in federal research funding to Harvard University.
- Harvard did not accede to the administration’s demands stemming from accusations of antisemitism.
- Some wonder why wealthy schools like Harvard can’t plug funding gaps with income from endowments.
- Given donor restrictions and spending policies, endowment income cannot replace lost federal funds.
While Harvard University and the Trump administration battle over academic freedom, institutional autonomy, tax-exempt status, and diversity in its many forms, billions of dollars in research funding hangs in the balance, causing many to wonder why Harvard, with the world’s largest university endowment, doesn’t just take its money and run.
With more than $53 billion in the bank, can’t Harvard just plug the gaps left by losses in federal funding?
Not exactly.
Trump Administration Freezes Federal Funding
In March, the Trump administration promised to review $9 billion in federal funding to Harvard, including $256 million earmarked for the university and another $8.7 billion designated for its hospital affiliates, in light of claims of antisemitism on campus.
A letter to the university from the administration outlined various demands with which Harvard must comply, covering concerns such as governance and leadership, faculty and staff hiring, admissions, international students, and diversity, equity, and inclusion (DEI) policies. These demands ventured well beyond the matter of antisemitism.
Harvard said no, stating it would not “surrender its independence or relinquish its constitutional rights.”
Accordingly, the Trump administration froze $2.2 billion in federal grants to the university, followed by another $1 billion slated for health research. University leadership decried these moves, claiming funding cuts would jeopardize critical research, scientific discoveries, and public health.
“The victims will be future patients and their loved ones who will suffer the heartbreak of illnesses that might have been prevented or treated more effectively,” Harvard President Alan Garber wrote.
“Indiscriminately slashing medical, scientific, and technological research undermines the nation’s ability to save American lives, foster American success, and maintain America’s position as a global leader in innovation.”
Harvard’s not alone in this regard. The Trump administration has frozen $1 billion in grants to Cornell University, $790 million at Northwestern University, and $175 million at the University of Pennsylvania, among other targets.
Facing a $400 million reduction in funding, Columbia University acceded to the administration’s demands pertaining to antisemitism, campus unrest, and certain academic programs.
Yet Harvard remains steadfast in its refusal to bow to federal demands and has sued the Trump administration over funding cuts.
Donor Restrictions Limit Flexibility
Meanwhile, observers wonder why a university sitting on a $53.2 billion war chest doesn’t use its own money to continue the vital research now in jeopardy.
It’s not that simple.
For starters, a university endowment isn’t “an” endowment but rather a collection of endowed accounts. It’s not a lump sum. In Harvard’s case, the endowment comprises some 14,000 individual funds.
Most of those endowed funds are designated, or restricted, by donors for certain purposes — scholarships, academic programs, faculty support, athletics, and so forth. Universities create endowment agreements, essentially legally binding contracts with donors promising to spend funds according to the donor’s wishes.
If an endowment is earmarked for, say, scholarships for philosophy students, the university can’t spend income from that fund on scientific research or lab equipment. That would violate the donor agreement.
Now consider that 80% of Harvard’s endowment is restricted in this fashion.
Of course, that leaves 20% in unrestricted funds, which Harvard says are “more flexible in nature” and “critical in supporting structural operating expenses and transformative, strategic initiatives.”
Could Harvard use these unrestricted funds to cover research expenses?
Let’s do some math. All told, Harvard’s endowment provided $2.4 billion toward the university’s budget in fiscal year 2024 (ending June 30, 2024). Twenty percent of that is $480 million.
So in theory, even if Harvard allocated every dollar generated from unrestricted endowed accounts toward research, it would still fail to cover the potential billions in federal funding losses.
Naturally, the $480 million doesn’t include income from endowed funds designated for research, but those funds would have to be restricted in such ways that they support the research unfunded by federal dollars.
Here’s another concern. An endowment might be unrestricted but held by a particular school within the university. An unrestricted fund at Harvard Business School, whose endowment constitutes roughly 10% of the university’s $53 billion, wouldn’t necessarily be available for scientific or medical endeavors.
Finally, if congressional Republicans get their way, wealthy universities will realize less cash from their endowments thanks to proposals seeking to raise the existing 1.4% endowment tax to 21% or even 35%.
In short, Harvard’s endowment revenue is no substitute for federal funding, which totaled $686 million in fiscal 2024 and was the largest source of support for university research.
Adjusting Spending Rates in Emergencies
But wait, you say. These payout figures — the usable income generated by the endowment — are predicated on a 5% spending rule. Why not increase the payout amount? Universities can and do, though sparingly.
Here’s a quick primer on how endowments work.
Think of a university endowment as a savings or retirement account. The principal, or corpus, generates interest that must be spent according to the donor’s wishes. That principle remains untouched in perpetuity, meaning forever.
As an example, say a donor establishes a $1 million endowment. Using a 5% spending rate (college rates typically range from 4-6%), the endowment will pay out $50,000 that must be used according to the donor’s wishes — as a scholarship, for instance.
Colleges invest these endowed funds, generating returns that often exceed the 5% expenditure. Excess funds are added to the corpus so it continues to grow over time and keep pace with inflation; otherwise, that $1 million endowment will have far less impact on future generations.
In managing endowments, universities exercise extreme prudence, favoring long-term growth and viability over short-term gains. That’s why they increase spending rates only in extreme circumstances.
The COVID-19 pandemic was one. When the crisis hit, endowment spending increased from 4.36% to 4.59%. Facing budgetary losses from students no longer being on campus or dropping out, colleges needed to draw more from their endowments to bridge financial gaps.
Similarly, during the Great Recession, about half the colleges in one study said they increased endowment spending in fiscal year 2009 to support campus operations.
In extreme cases where an institution might face bankruptcy or closure, a court can issue a doctrine of cy pres, which allows a college to use its endowment for sheer survival.
Harvard notes that its payout rate ranges from 5.0-5.5% depending on market returns.
During the pandemic, the university approved a 2.5% increase to the spending rate to address financial concerns.
It could adopt this tactic again, thus temporarily raising the amount of usable income from the endowment, but that doesn’t constitute a long-term strategy the university would likely entertain.
Bear in mind that some states limit the spending threshold for both public and private institutions. In Ohio, it’s 5%, and in California and New York, it’s 7%. That has implications for Columbia, whose endowment of $14.8 billion is less than a third of Harvard’s.
No Substitute for Federal Funding
In fact, the entire exercise of exploring Harvard’s possible use of its endowment to offset federal funding losses represents the most extreme end of the wealth spectrum, so it’s hardly an example other institutions could follow. And if Harvard can’t plug the gaps, no institution can.
So far, targeted funding cuts have affected only a few wealthy institutions, though the 15% indirect cost cap on the National Institutes of Health and the Department of Energy grants threatens the entire higher ed industry.
In an American Council on Education podcast, Steven Bloom, assistant vice president of government relations, pointed out that in 2023, the federal government spent roughly $60 billion on research funding. Total higher education endowment spending that year across the board — not just for research — was about $35 billion.
If endowments can’t cover federal funding losses, what can? Harvard aims to issue $750 million in bonds as a stop-gap measure addressing immediate needs.
Yet the real answer is that nothing can substitute for federal funding — not endowment spending, not investments from corporate America, not private philanthropy. Universities like Harvard will have to learn to do more with less or, more likely, just do less, which doesn’t bode well for society. (Best Colleges)
Here are other takeaways on why Harvard can’t use its endowment to replace federal funding.
Harvard University doesn't simply "not use" its endowment, but rather manages it according to specific rules and donor restrictions. The vast majority of the endowment is directed to specific programs, departments, or purposes by donors. This means Harvard is obligated to preserve the principal and use only a portion of the earnings for operations, as outlined by the donor's terms.
Here's a more detailed explanation:
Donor Restrictions:
.
A large portion of the endowment (often 80% or more) is donor-directed, meaning it's earmarked for specific purposes like scholarships, faculty positions, or research projects. These funds must be used according to the donor's wishes.
Intergenerational Equity:
.
Harvard is committed to maintaining the endowment's value for future generations, so it typically spends a relatively small percentage of the annual return (around 5-5.5%) and reinvests the rest.
Prudent Management:
.
Harvard, like other institutions, follows the Uniform Prudent Management of Institutional Funds Act (UPMIFA), which sets rules for managing endowment funds and limits spending.
Illiquid Assets:
.
Some of the endowment is invested in illiquid assets like hedge funds and private equity, which can't be easily converted to cash.
Strategic Use:
.
Harvard may choose to use its endowment for specific purposes during times of crisis or to support strategic initiatives, but it's not a simple matter of tapping into a "rainy day fund".
Unrestricted Funds:
.
While a portion of the endowment (around 20%) is unrestricted, it's still not a free-for-all. The university carefully manages these funds to ensure they can be used for a variety of purposes while maintaining the long-term financial stability of the institution.
In other words, thought Harvard has an endowment of $50+billion, it could well go bankrupt.
With the unthinkable loss of our oldest university, America would lose instantly in major ways:
• Loss of Scientific and Medical Research: Harvard leads groundbreaking research in medicine, science, and technology. Bankruptcy would halt or drastically reduce this work, undermining public health advances, scientific discoveries, and America’s global leadership in innovation.
• Talent Drain: Harvard attracts top students and researchers from around the world. Its collapse would make the U.S. less attractive for the best minds, weakening our nation’s intellectual and scientific capital.
• Economic Impact: Thousands of jobs at Harvard and related industries (such as suppliers and research partners) would disappear, causing economic harm in the Boston area and beyond.
• Prestige and Influence: Harvard’s reputation boosts America’s global standing in education and research. Its loss would diminish U.S. prestige and influence in academia and international affairs.
• Ripple Effect on Higher Education: Other universities, especially those with smaller endowments, could face similar crises, threatening the stability and independence of the entire American higher education system.
Whether you have a Harvard Degree or don’t, write to the White House and to any red politician in your view (maybe, for instance, Rand Paul, or Susan Collins or the sniveling Mike Johnson) reminding them of the line between the Executive branch and the IRS.
Write to the President of the college you attended or attend and ask that your school to join with their brother and sister colleges to defend Harvard and condemn the Trump administration’s actions and demands, including this unlawful threat using the IRS and Tax Status as a weapon. Remind them of the possible consequences of a Harvard bankruptcy.
Harvard’s Trick for Fighting Trump? A Deep Bench of Conservative Lawyers
Harvard has hired lawyers connected to conservative Supreme Court justices and President Trump himself to fight its case against the government.
Harvard University sued the Trump administration over its promise to cut billions in federal funds.
A former Texas solicitor general who argued in favor of abortion restrictions. Two former clerks to Justice Clarence Thomas, one of the Supreme Court’s most conservative members. And a one-time adviser to the Trump Organization.
These are a few of the conservative legal heavyweights Harvard University has hired to win a lawsuit against the Trump administration.
The A-list squadron of Republican-aligned lawyers is a departure from the last time Harvard faced a headline-seizing legal fight. Back then, in 2022, Harvard was defending affirmative action and turned to a firm long associated with the university, WilmerHale.
But the Trump administration has scrambled the legal landscape.
Now WilmerHale is under attack by the administration itself and is fighting its own battle. And Harvard is facing down a fundamental threat after refusing a list of administration demands that included eliminating professors “more committed to activism than scholarship” and banning international students who oppose “American values.”
Unlike last time, it has billions of dollars in federal funds on the line if it loses.
Legal observers have said that Harvard stands a good chance of winning on the legal merits. Although the case could face headwinds if it reaches the Supreme Court, the roster of conservative-aligned lawyers was designed to give the university a boost in front of a court with a supermajority of Republican-appointed justices.
“This fits with a long tradition of clients trying to signal to the Supreme Court through the counsel that they hire that this is not Harvard liberal versus conservative administration,” said Aaron Tang, a law professor at the University of California, Davis. “This is academic freedom. It ought to appeal to someone across the political spectrum.”
Lee C. Bollinger spoke during a graduation ceremony at Columbia University in 2017.
Lee C. Bollinger, a former president of the University of Michigan, said he had used the same strategy when choosing a lawyer to argue an affirmative action case before the Supreme Court in 2003.
“I understand exactly what Harvard is thinking in employing these lawyers,” he said.
The Supreme Court’s swing vote at the time was Justice Sandra Day O’Connor, a Reagan appointee. Michigan chose as its lawyer Maureen E. Mahoney, who had served as a clerk for William H. Rehnquist, a Republican appointee who was chief justice when the Supreme Court heard the case.
“I knew that Sandra Day O’Connor was likely to be the critical vote, and I wanted somebody who would really understand how she thought and how she might think about this case,” Mr. Bollinger, who subsequently became Columbia University’s president, said in a telephone interview.
The strategy worked. The Supreme Court ruled in Michigan’s favor.
Harvard did not comment for this article. Its case against the government argues that the Trump administration orders violate the First Amendment in several ways. The university’s arguments also rely on a more arcane law, the Administrative Procedure Act, which drives the process for federal agencies to develop rules and impose penalties. The university said the government had ignored its own requirements in order to cut federal funds.
Justin Driver, a professor at Yale Law School who clerked for Justice O’Connor, said Harvard’s roster of lawyers “underscores how deeply fractured the right is during this fraught moment in our nation’s history.”
And for the lawyers involved, taking on Harvard as a client carries some risks. One of the lawyers, William A. Burck, advised the Trump Organization until recently, when Mr. Trump moved to fire him because he had agreed to represent Harvard.
Seventeen lawyers have officially registered for Harvard’s team, and there are most likely others working behind the scenes.
Not all of them are known for being aligned with conservative causes. Joshua S. Levy, for example, was the U.S. attorney in Boston for part of Joseph R. Biden Jr.’s presidency. He is now a partner in the firm Ropes & Gray. (Harvard still works with WilmerHale on other matters.)
But Mr. Burck, a partner in the firm Quinn Emanuel Urquhart & Sullivan, is a Yale Law graduate who clerked for Justice Anthony M. Kennedy, a Reagan appointee who retired in 2018. Mr. Burck had also served as a deputy to Justice Brett M. Kavanaugh in the George W. Bush White House and was once castigated by Senator Chuck Schumer, Democrat of New York, as a Republican partisan warrior.
At least seven other lawyers in the group have clerked for Republican-appointed Supreme Court justices, including four sitting justices, before or during their tenures in Washington.
In addition to Mr. Burck’s firm, at least three other firms are working on Harvard’s case, including Lehotsky Keller Cohn. Steven P. Lehotsky, a Harvard Law graduate who clerked for former Justice Antonin Scalia, worked in the Justice’s Department’s Office of Legal Counsel during Mr. Bush’s administration and had a central role in building Harvard’s legal team, according to a person familiar with the strategy who spoke on the condition of anonymity to discuss private conversations.
Mr. Lehotsky, who was among the lawyers who appeared on Harvard’s behalf in court on Monday for a conference in the case, did not respond to emails.
One of Mr. Lehotsky’s partners, Scott Keller, is a former solicitor general for the State of Texas who defended the state’s tough restrictions on abortion clinics and who sees Republican Senator Ted Cruz as a mentor. Another, Jonathan F. Cohn, a Harvard Law graduate, clerked for Justice Thomas.
The Harvard team also includes Robert K. Hur, a partner in the firm King & Spalding. Mr. Hur, who clerked for Chief Justice Rehnquist, is perhaps best known for investigating Mr. Biden in a classified documents case.
Mr. Hur, who was the U.S. attorney in Maryland for much of Mr. Trump’s first term, concluded that there were insufficient grounds for prosecution but nevertheless set off a firestorm by referring to Mr. Biden as “an elderly man with a poor memory.”
Harvard’s strategy has been successful before, but it also has risks.
“You have to be really careful,” Mr. Bollinger said. “If the people you’re arguing to feel like you’re trying to manipulate them by the type of lawyer that you have, that can turn them against you.” (New York Times).
As to the issue of Harvard and antisemitism, which Trump has used as the basis for attacking and defunding the university, you might want to read the report that Harvard issued on Combating Antisemitism and Anti-Israeli Bias as well as the report the university issued on Combating Anti-Muslim, Anti-Arab, and Anti-Palestinian Bias.