A measure that might have a significant impact on the state's academic institutions, including major players like Harvard University and the Massachusetts Institute of Technology (MIT), is presently being discussed by the Massachusetts state assembly. The proposed law, titled "An Act to Support Educational Opportunity for All," aims to assist Massachusetts' private colleges with endowments more than $1 billion. Should the law be approved, all assets under management would be subject to an annual 2.5 percent tax.
To put things in perspective, as of June 30, 2022, Harvard's endowment was estimated to be worth $49.444 billion.
The possible effects of this law on the financial stability and competitiveness of elite universities like Harvard, Amherst, and MIT are among the main issues surrounding it. According to a recent estimate by the Harvard journal The Crimson, if the tax is enacted, the Ivy League institution may lose an astounding $14.6 billion over the course of the following ten years. This enormous loss would deplete a sizable chunk of Harvard's endowment, which would make it more difficult for the university to continue to be one of the best in the country.
Former Harvard President Lawrence H. Summers has expressed significant opposition to the proposed measure, claiming that it might seriously damage Massachusetts' higher education industry, according to The Crimson's story.
"Great universities contribute significantly to Massachusetts' unique strength, and this tax proposal would severely impair the state's universities' ability to compete in the future," the speaker stated.
"Anything in the neighborhood of a 2.5 percent tax would be an utterly irrational assault on the idea of a nonprofit organization," Summers went on. That would be equivalent to almost half of the endowment's operational revenue.
Democratic state representatives Christine P. Barber and Natalie M. Higgins, who are co-sponsors of the measure, have supported it in spite of these reservations, presenting it as a way to enhance public education in Massachusetts. They claim that the tax's proceeds will be put toward addressing educational disparities and giving state people more access to higher education.
Nonetheless, the bill's opponents concur with Summers, claiming that it will harm Massachusetts' universities, especially Harvard and MIT. The head of MIT's Economics Department, Jonathan H. Gruber, called the reasoning for excluding certain universities according to the amount of their endowments "nonsensical."
President and CEO of the Association of Independent Colleges and Universities in Massachusetts, Robert McCarron, issued a dire warning, claiming that the law will severely damage Harvard and MIT in particular and would probably make it more difficult for the two schools to compete with other educational institutions.
"That [spending endowment dollars on taxes] simply means Massachusetts loses because those donations mean jobs, spin-off companies, patents, and further research," he stated to The Crimson.
McCarron continued by stating that donors who presently fund universities in Massachusetts are probably going to go to rival schools like Stanford University in California or Yale University in Connecticut.
In an email to Chief Investment Officer, Liz Clark, vice president of research and policy analysis at the National Association of College and University Business Officers, repeated this idea. She stated that the group she works for is "against excise taxes on higher education institutions that divert funding from colleges and universities' nonprofit, educational missions." In the end, these taxes reduce the amount of money that educational institutions may devote to their missions, professors, and students.
There is a precedence for the Massachusetts Statehouse to consider this endowment tax bill. Similar tax reform legislation, aimed at prestigious colleges like Harvard's investment revenue, was enacted by Republican lawmakers in 2017. Nonetheless, the proposed plan is a more drastic step than the federal endowment tax that Republican members of Congress imposed in 207
The Massachusetts university endowment tax bill is still pending, but it may have a significant impact on Harvard, MIT, and other private universities in the state. If passed, the law will fundamentally alter how colleges handle their finances and draw in philanthropic assistance, changing the face of higher education in Massachusetts and any other states that could implement legislation along these lines.
