Harvard: tax, federal acts to impact budget up to $1B annually

Harvard: tax, federal acts to impact budget up to $1B annually

President Donald Trump's sweeping tax and spending package, signed into law on July 4, imposes a significant new tax burden on Harvard University. The legislation raises the federal excise tax on Harvard's endowment income from 1.4 percent to as high as 8 percent, potentially costing the university more than $1 billion annually [1].

The "One Big Beautiful Bill" targets the wealthiest private colleges and universities, setting a tiered structure for endowment taxes. Institutions with more than $2 million in endowment assets per domestic, tuition-paying student face an 8 percent tax rate, while those with endowments between $750,000 and $2 million per student are taxed at 4 percent. The original House proposal sought a 21 percent top tax rate, but the final version represents a compromise [1].

Harvard, with over $53 billion in endowment assets and more than $2.9 million in endowment assets per student, is expected to fall into the highest tax bracket. The new tax applies to the endowment's annual investment income, which totaled $2.5 billion in fiscal year 2024. This change is expected to significantly strain Harvard's finances, as endowment distributions made up 37 percent of the university's operating revenue in the same year [1].

The legislation also includes provisions that could impact Harvard's ability to provide financial aid and support faculty salaries and research. Endowment distributions are a key funding source for these areas, and the increased tax burden may force the university to reduce expenditures or reallocate funds. Harvard has not yet commented on how it plans to adjust to the new tax burden [1].

The tax hike is part of a broader effort by Republican lawmakers to rein in what they perceive as excessive, untaxed endowment gains at elite universities. The legislation follows years of sustained political pressure targeting Harvard's wealth, including the freezing of federal research funding and threats to revoke the university's tax-exempt status [1].

While the final version of the legislation represents a compromise from the original House proposal, it still introduces a substantial and lasting federal intervention into Harvard's finances. The new tax takes effect immediately and will apply to the current fiscal year, which began on July 1 [1].

References:
[1] https://www.thecrimson.com/article/2025/7/5/big-beautiful-bill-endowment-tax/
[2] https://www.usatoday.com/story/news/education/2025/07/08/trump-harvard-endowment-tax-big-beautiful-bill/84504865007/