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Trump says US will review universities’ tax-exempt status

Jordan Fabian
Bloomberg

President Donald Trump ordered the Treasury Department on Friday to review the tax-exempt status of colleges and universities, following his threats to cut federal funding to schools that do not reopen due to the coronavirus pandemic.

In a pair of tweets, Trump accusing institutions of higher education of focusing on “Radical Left Indoctrination” rather than educating their students.

“I am telling the Treasury Department to re-examine their Tax-Exempt Status and/or Funding, which will be taken away if this Propaganda or Act Against Public Policy continues. Our children must be Educated, not Indoctrinated!” Trump said in a pair of tweets made while traveling to Florida.

President Donald Trump listens during a meeting with Hispanic leaders in the Cabinet Room of the White House, Thursday, July 9, 2020, in Washington.

The president’s attack on colleges and universities comes as they’re struggling with how to handle the upcoming fall semester due to the virus, which has dealt a financial blow to many.

School Cutbacks

Some schools, including Stanford University and Dartmouth College, have announced they’re cutting varsity sports programs and staff positions to address budget crunches made worse by Covid-19.

Johns Hopkins University disclosed in April that it will suspend contributions to employee retirement accounts, cut the salaries of its highest-ranking officers, and prepare for furloughs and layoffs, according to the Washington Post.

Trump’s power to drastically alter universities’ tax exemption is limited, but he could make policy changes that could hurt their bottom lines. For example, the Treasury Department could make changes through regulations, such as the Unrelated Business Income Tax, which pertains to profits earned through a part of the school that is not substantially related to the non-profit or educational part of the university.

“Any drastic or dramatic change would require Congress to act,” said James Lucier, an analyst at Capital Alpha Partners LLC in Washington.

Universities are also heavily reliant on the federal government for research contracts, which Lucier said the Trump administration could curtail.

Pressure Rising

Trump this week has intensified pressure on schools to reopen, threatening to cut off federal education funding to those that do not fully welcome back students and criticizing U.S. Centers for Disease Control guidance as too burdensome.

A full-fledged opening of K-12 schools could boost economic growth by allowing parents to return to the office, rather than stay home to care for their children.

But it could also risk exacerbating the spread of the virus, which has already seen a resurgence in several states. The U.S. set another record on Thursday, with more than 63,000 new cases reported. Sunbelt states that were quick to lift stay-at-home orders, such as Florida, Arizona and Texas, have been hit particularly hard.

Some universities have pushed back against other pandemic-related moves from Trump. Harvard and the Massachusetts Institute of Technology have sued to block the administration’s new visa guidelines that could eject international students from the country if schools only offer online courses.

Large Endowments

But critics have argued that the nation’s top colleges should not be viewed as charity cases.

Some of the richest universities, such as Harvard and Yale, have sizable endowments already being taxed after the 2017 tax overhaul signed by Trump. Their investments are among the most sophisticated on Wall Street.

Harvard and several of its wealthy peers in April announced they would decline to accept stimulus funds even though they were entitled to the money based on a formula contained in the federal coronavirus rescue package. The schools never received any money.

U.S. colleges and universities have long found themselves a target of Trump’s ire as the president, a graduate of the Wharton School of the University of Pennsylvania, campaigned as a leader who would take on the nation’s elite.

Trump signed an executive order in March 2019 that would require universities seeking federal grants to uphold First Amendment rights, an effort to address long-running complaints from conservative students that they’re persecuted on liberal-leaning campuses.

Speaking to a group of young supporters in Phoenix last month, Trump said that the “radical left” was “working to eliminate free speech on our college campuses.”

“Under my order, any college that refuses to let you speak stands to lose billions of dollars in terms of the overall system,” the president said.