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Attack on Academe

The Tax Reform Act of 1986 has become law. The deed is done, for universities and everyone and there seems little further point in arguing over probable effects. The question that remains is why, at a time when Congress is concerned about preserving the nation's economic competitiveness and technological leadership, did it choose to withdraw significant tax advantages from universities, institutions which, given the way American science is organized, are essential to these goals? The two most se

By | October 20, 1986

The Tax Reform Act of 1986 has become law. The deed is done, for universities and everyone and there seems little further point in arguing over probable effects. The question that remains is why, at a time when Congress is concerned about preserving the nation's economic competitiveness and technological leadership, did it choose to withdraw significant tax advantages from universities, institutions which, given the way American science is organized, are essential to these goals?

The two most serious losses are certainly in the areas of the deductibility of charitable giving and the ability to issue tax-exempt bonds to finance capital costs of construction and renovation of research facilities. Private fund raising is the major tool that universities, public and private, have at their disposal to improve the quality of teaching and research without additional cost to their students or the taxpayers. The best economic models we have suggest that charitable giving, particularly by donors in higher income brackets, is directly responsive to tax considerations, and that this law will have an impact on what those donors can afford to give.

The $150 million cap on the amount of tax-exempt bonds that any institution may have outstanding has significant financial implications for those institutions affected, but it also marks a major departure in education policy for the nation. For the first time in major federal legislation, public institutions (on whose behalf bonds may be issued by state governments with no volume restrictions) are treated differently than private institutions that serve identical public purposes.

I have a good deal of faith in the energy of university fund-raisers and in the financial acumen of university business officers, and I am sure that the institutions will do everything they can to mitigate the effects of these losses. But it surely is not amiss to point out that the tax code is being changed in ways that will make maintaining the quality of our research institutions in the service of national goals considerably more difficult.

-Thomas Head
Association of American Universities
One Dupont Circle, N.W.
Washington, D.C. 20036
 

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