Reagan Tax Cuts May Hurt Harvard Fund-Raising Efforts

The Reagan tax-cut package, approved in its final form by Congressional conferees on Saturday, may hurt Harvard efforts to raise funds from individual contributors and large corporations. University officials and several economists said yesterday.

Major provisions in the bill, including the reduction of the maximum personal income tax rate, will make it less attractive for private supporters to donate money or stock to Harvard, by increasing the net "cost" of such contributions.

"A Chilling Effect"

The Reagan package could have "a very chilling effect," as one University official put it, especially when combined with the substantial cuts Congress has approved for federally sponsored campus research and student loans.

Parker L. Coddington, director of government relations for Harvard, said that despite the potential adverse effects of the tax cuts and spending reductions. Harvard officials must now cling to "one chief hope that the administration program does achieve its ends" in cutting inflation, increasing the Gross National Product, "and building a generally stronger economy, so that there will be money to give to places like Harvard."

Even as they cross their fingers for the administration's plan, however, Harvard financial officers will focus attention on serious shortfalls caused by budget cuts in agencies like the National Science Foundation, Coddington said. "If we can make a case to private contributors that we have been hurt in enough areas, perhaps we can encourage support in spite of the tax problems," he added.

The University recently passed the midway point in a five-year, $250-million capital fund drive aimed largely at contributors who will be affected by the tax cuts.

Problematic Provisions

Two of the provisions of the tax bill that could discourage private contributions to universities like Harvard are:

* The reduction of the maximum individual tax rate from 70 per cent to 50 per cent. A person in the highest tax bracket now keeps only 30 cents out of every dollar he earns, so if he gives a dollar to Harvard--a non-taxable contribution--he "loses" only that 30 cents.

With the tax cut, the same person will keep 50 cents for every dollar earned, thus the "cost" of giving a dollar to Harvard rises from 30 cents to 50 cents. "Studies indicate that charitable givers are very sensitive to the tax price, or cost, of giving, and the changes should have fairly important results for universities." Alan J. Auerbach, assistant professor of Economics and an expert on tax policy, said.

* The reduction of the maximum rate on long-term capital gains taxes from 28 per cent to 20 per cent. If a person buys $1000 in stock that subsequently doubles in value, he may decide to donate the stock to Harvard to avoid paying a capital gains tax and to allow himself a further tax deduction for charitable giving. Under the existing law, the donation of the $2000 in stock "costs" only $320.

With cuts in the capital gains and personal income levies, the same contribution will "cost" $800, and the general price of giving stock to Harvard will rise from 16 cents on the dollar to 40 cents on the dollar.

Lawrence B. Lindsey, an associate of Auerbach's at the National Bureau of Economic Research (NBER) and an instructor for the summer version of Economics 10, called the capital gains reductions "particularly dramatic in regard to universities" and estimated that as much as 40 per cent of Harvard's income from private contributions could evaporate.

Less Drastic Predictions

Other experts, including Lester Thurow, the prominent MIT economist and author, predicted less drastic results, but all agreed that the argument used by the administration and conservative legislators--that lower taxes will aid all aspects of the economy--will probably not make up for the universities' losses.

"The offset lactor of people having more money in their packets to give is not a very powerful effect--not even worth mentioning." Auerbach said.

Depreciation Acceleration

Corporations will have less incentive to make tax-free contributions to universities because the Reagan plan will reduce their taxable income as they are allowed to accelerate write-offs for equipment and facilities depreciation. Companies are allowed to give a certain percentage of their taxable income to charity without paying federal levies on it.

Coddington cited studies conducted by Thurow and Martin S. Feldstein, professor of Economics at Harvard and director of the NBER, that predict that the government could eventually eliminate those taxes on profits and thereby end any incentive for corporations to contribute to universities.

Bad Precedents

The Harvard lobbyist also said two secondary aspects of the tax bill--the establishment of income ceilings for certain benefits and the introduction of specific time limits for other new rules, a practice known as "sunsetting"--will set long-term precedents greatly feared by university development officers.

If expanded in the coming years, these restrictions could hurt Harvard's efforts to cultivate contributions from very wealthy supporters who either would not qualify under the income ceilings or might be hesitant to undertake long-term estate donations under federal guidelines which could change after expiring.

On the positive side, Coddington said Harvard and other schools had won only minimal victories in creating certain incentives for industrial support of campus research, which he said "will not stimulate very much new investment.