House Favors Closing College Tax Loopholes

Passage by Congress of legislation to close some of the loopholes in the taxing of business activities of universities appears very likely following the adoption last week of some proposals on the subject by the House Ways and Means Committee. The House group favors the taxing of unrelated businesses owned by colleges and of profits made by a tax-exempt institution when it buys a property with borrowed money and then leases it back to the original owner on a long-term basis.

A CRIMSON check shows that there is bipartisan support in Congress behind these ideas, but it is not yet certain when the proposed legislation in may be acted upon. John W. McCormack, House Majority leader, would not say when he thought the House would consider the suggestions. Senato action would follow.

Harvard Treasurer Paul C. Cabot '21 testified this winter before the House committee that these suggestions would have no effect on the University since it has always followed a conservative finance policy.

However, the legislation could harm many other colleges where sinking interest rates have forced officials to use every means possible to increase the returns from their endowment.

A crowded House calendar in an election year may delay consideration of the proposals for a time, but it seems clear that eventually they will pass, for no reasoned opposition to the bill has been presented.

Need for Funds

Urgent need for more funds by the government is one reason for the strong support of the ideas. Legislators view these suggestions as an easy way to increase tax collections by as much as $100,000,000 a year. (The proposals also hit foundations and charitable trusts, in addition to educational institutions.)

Representative Robert W. Kean '15 (R-N. J.), a member of the Ways and Means Committee, offered a second reason--the unfairness of the present system. He told the CRIMSON, "If a business owned by a college does not pay the corporation tax which every other business in the same industry pays, it could undersell all of its competitors and perhaps put them out of business."

Congressmen said that it was excessive abuses of the present lenient system which has existed for many years that led to the current "reforms." The most famous case is the ownership of the Mueller Macaroni Co. by New York University. The courts did not wait for legislative action, ruling early this month that N.Y.U. must pay back taxes on its profits.

The University of Louisville today operates the Churchill Downs race track through an associated foundation; Yale owns the property on which a San Francisco department store is located.

Committee United

All the Ways and Means Committee members contacted by the CRIMSON felt that the changes had to be made. The ideas have strong administration backing, having been first presented by Secretary of the Treasury John W. Snyder in early February.

Senator Robert A. Taft (R-Ohio), the leading Senate Republican, said that he was "surprised" when he learned of the present tax set-up. He strongly endorsed the reforms now approved by the House group.

In the face of all this criticism, the Association of American Universities issued a statement urging education institutions to avoid investments that would jeopardize their tax-exempt status.

The association's recommendations were based on a report prepared by a group of leading educators headed by M.I.T. President James R. Killian, Jr., who receives an honorary degree here today.

The group did defend as proper the "lease back deals" referred to earlier in which a university buys a business and then leases it back to the seller.