Reich Offers New Tax Structure

Several Harvard faculty members said yesterday that a proposal to weaken the tax-exempt status of donations to Harvard and other cultural institutions would not have the intended effect of encouraging contributions to charities for the underprivileged.

In an editorial published in the Los Angeles Times on Oct. 1, Robert B. Reich, former Secretary of Labor under President Clinton and a former professor at the Kennedy School of Government (KSG), wrote that donations to institutions that “serve the rich” should only be 50% tax-deductible, while contributions directed to charities for the poor be fully deductible.

Among the organizations listed as examples of institutions serving the rich were art museums, theaters, and Harvard University.

In the editorial, Reich argued that charitable contributions to institutions like Harvard are strategic “investments in the lifestyles the wealthy already enjoy and want their children to have too,” particularly because legacies are purported to receive preferential treatment in the admissions process.

The editorial followed debate in the Senate last week of a law that would allow the government to regulate University endowments. Among the options discussed were repealing the tax-exempt status of university endowments and mandating minimum yearly payouts to help lower tuition costs.

?Reich rejected the idea that a change in policy would decrease donations enough to hurt Harvard’s financial aid program.

“Harvard is the richest institution of higher learning by far. Harvard has no reason to worry about financial contributions drying up,” Reich said.

According to the Harvard Development Office, during the fiscal year of 2006, Harvard University received $614 million in gifts. Out of this, $278 million constituted gifts to the endowment, which totals roughly $35 billion.

But in interviews yesterday, several Kennedy School of Government (KSG) faculty members said the proposal might not have the intended effect of getting money to those who need it.

“What they ought to be doing, if they really want these institutions to be more equitable in their distribution, is to increase the tax benefits of individuals who support scholarship aid,” said Peter D. Hall, a lecturer on nonprofit organizations at the KSG. He described the editorial as “simple-minded” and “unworthy of Reich.”

He also noted that members of the Harvard community devote a great deal of time and money servicing the public good by performing research in fields such as medicine.

Gowher Rizvi, the director of the Institute of Government Innovation at the KSG, agreed that donations to Harvard help to promote the public good, in part by funding scholarships for needy students. At the same time, though, he called for greater transparency and accountability of tax-exempt dollars.

In spite of recent increased attention to Harvard’s endowment, Hall said that tax laws are unlikely to change.

“There’s no compelling reason,” he said. “This is an election year, and this has nothing to do with reality.”