National Review Online – According to the Wall Street Journal, Massachusetts legislators are studying a plan to levy a 2.5-percent annual tax on the portion of college endowments that exceed $1 billion. The high-wage union workforce with lifetime employment contracts and restrictive work rules tenured faculty is not amused. Harvard’s official response is pretty funny:
Harvard claims to be in the business of serving humanity through the creation and dissemination of knowledge, but Biogen claims to “transform scientific discoveries into advances in human healthcare.” That sounds pretty good, too.
If you think of Harvard as a corporation, it had an income statement in FY 2007 with about $2.2 billion of revenues (tuition, sponsored research contracts, and so on) and about $3.2 billion of expenses, and therefore had to move about $1 billion from the endowment to make up the difference in order to run at basically break-even. In other words, it’s a big institution, but hey, it doesn’t make any money and has to survive on the kindness of donors, even if these donations are channeled through an endowment.
But this isn’t quite the whole picture. The overall Harvard corporation gets to make money through investment returns on its endowment (or, more precisely, the General Investment Account, which currently includes about $6 billion of investable assets in operational accounts in addition to the $34 billion endowment) that doesn’t get reported as revenue. Last year, Harvard made more than $7 billion of tax-free investment income.
