Harvard's Finances: A Tale of Two Countries
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Published on March 24, 2010
Harvard just announced its charges for the 2010-2011 academic year: $51,000 per undergraduate. That covers tuition, fees, room and board. It does not cover such things as clothing, books and computers, school supplies, room furnishings, cleaning expenses, travel to and from Cambridge, MA, and entertainment. If we conservatively estimate these to cost another $9,000 on average, we reach a cost of $60,000 per academic year (September to April) for each Harvard undergraduate. In short, it now costs a quarter of a million dollars to get a Harvard BA degree. Fashionably fancy degrees are expensive.
About 40 per cent of Harvard undergraduates pay that full amount. The other 60 percent get an average of $40,000 in financial aid, so they are out an average of $20,000 per academic year. Harvard also proudly announced that for 2010-2011 it rejected 93 per cent of those who applied. Fashionably fancy degrees are exclusive.
With a total of 6,000 undergraduates, Harvard will now bill their families over $300 million while granting over $150 million in financial aid. Harvard will thus reap net revenue from undergraduates of around $150 million. Of course Harvard draws revenue from many other sources too: lucrative government research grants, income on its endowment holdings of stocks and bonds, the services its medical school sells, tuition of graduate and professional students, gifts from corporations and rich individuals, and more.
Harvard has expenses too (faculty and staff salaries, costs of utilities, equipment, and supplies, building maintenance, etc.). However, unlike most of us, Harvard avoids one big expense. It pays no significant taxes: not to Uncle Sam, nor to the State of Massachusetts, nor to the cities of Cambridge and Boston where most of its real estate sits. Any net operating income earned by Harvard is exempt from federal and state income taxes. Likewise, Harvard is exempt from Massachusetts' sales tax. In that way, Harvard is like other tax-exempt institutions (churches, charities, and schools). Harvard, however, is much richer than most of them.
Even better -- for Harvard -- is the fact that laws covering Cambridge and Boston exempt Harvard's lands and buildings from property taxes. Harvard thus evades paying those cities the many tens of millions of dollars in annual property taxes it would otherwise have to pay if it had not long ago arranged those legal exemptions. In contrast, middle and lower income owners of land, homes and cars in those cities must pay property taxes on them. Indeed, they all pay more precisely because Harvard does not pay. When Harvard utilizes the roads around the campus, calls upon local fire or police services, benefits from the public school educations provided to Harvard staff members, etc., local non-exempt taxpayers must pay for those services because Harvard does not pay the taxes to support those services. In effect, Harvard obtains free government services for which the rest of us pay.
Harvard also owns tens of billions of dollars in its endowment funds, chiefly invested in stocks, bonds, etc. Because of US tax law, Harvard pays taxes neither on the value of that property nor on the dividends, interest, and capital gains Harvard receives from that property. Likewise, because of US tax law, when corporations and rich people contribute to Harvard, they can lower the income taxes they pay to the federal and state governments. The lower taxes those contributors have to pay, the more the rest of us must pay to support the public services provided by government to everyone.
The story of tax law in the US is a tale of two countries inside one nation. One has shifted much of the burden of paying for government services onto the other. Harvard, the wealthiest university in the US, gets away with paying no taxes. Meanwhile, most of the rest of the society pays extra to cover the costs of the government services delivered to Harvard. We can summarize Harvard's finances as "Robin Hood in Reverse."
Some years ago, the grotesque injustice of Harvard's finances prompted the university to do some long-overdue local public relations work. It agreed to make some "payments in lieu of taxes" (pilot payments) to Cambridge and Boston: a tiny fraction of what it would have had to pay if it faced the same rate of property taxes paid by families and stores in those cities. But Harvard hypes the pilot payments in the hope that the public does not know or understand just how puny they are.
Harvard's finances depend upon and reflect a vast network of privileged, special treatment from government at all levels. It proves that you need not be poor in the US to secure vast state welfare. Indeed, the per capita government support to members of the "Harvard community" greatly exceeds welfare payments to members of this country's poor.
Imagine how different the fiscal health of Cambridge and Boston would be if their richest resident finally had to pay the same rate of property tax as their typical working class families. Imagine how much better the finances of Massachusetts would be in this time of economic crisis if Harvard and all the other rich private universities in that state finally had to pay the same rate of sales and income taxes as most other state residents. Imagine the improvement in our federal government's finances if it could finally tap the hitherto exempt property of wealthy private colleges and universities and the income they receive from that property.
It's long past due for them to pay for the public services delivered to them by paying their fair share of all taxes. Or will we maintain the privileges of a wealthy minority -- the national division into two countries - even into the depths of a long economic crisis for everyone else?
[In the interests of full disclosure; the author is a graduate of Harvard college.]
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