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After $400M Gift to Harvard, Government Must Limit Which Institutions Are "Tax Deductible"

Updated on June 6, 2015

John Paulson: Harvard's Biggest Donor Yet

Hedge fund manager John Paulson just gave Harvard University a $400 million donation.  Was it a good use of money?
Hedge fund manager John Paulson just gave Harvard University a $400 million donation. Was it a good use of money? | Source

Is it Time to Stop Giving Rich Nonprofits More Handouts?

Harvard University is the world's wealthiest institution of higher education. Known globally, the leader of the Ivy League has an endowment of over $36 billion and boasts a wealthy student body and mind-boggling list of rich and famous alumni. Yet, seemingly every year, Harvard receives record-breaking donations. Recently, it was given a $400 million contribution from hedge fund manager, and alum, John Paulson, which set the record for the largest contribution ever given a university.

The news set off a firestorm of controversy, with noted author Malcolm Gladwell leading the charge against Paulson's contribution. Gladwell and others criticized the gift as wasteful and intended more as a tax write-off than a gesture to help those in need. Then, interestingly enough, wealthy donors pushed back and announced that Paulson's gift was extremely helpful and that Paulson could have simply chosen to not donate at all. The Twitter war of rhetoric over the high-dollar donation has gone viral.

While Paulson was indeed generous to donate his $400 million, it is tough to argue that the gift was that beneficial. Harvard, after all, is already chock full of top-notch facilities. Even $400 million is practically a drop in the bucket to Harvard. The law of diminishing marginal returns dictates that $400 million to Harvard is far less helpful than $400 million to any other non-Ivy institution. Paulson's money simply adds yet another layer of overpriced icing on Harvard's cake.

But, in a democracy, it is nobody's place to tell someone where they must donate their money. Paulson, especially as a Harvard alum, has every right to give money to Harvard. While I would have preferred to see his $400 million go to buying food and shelter for the poor, I am glad he chose to donate at all rather than keep his money under a mattress. However, the government must change the tax code to disallow gifts to wealthy nonprofits from being tax deductible. The real shame in the situation is that Paulson's $400 million gift to Harvard, which doesn't need his money, allows him to pay less in income tax than he should.

To encourage Americans to give to charity, the government allows citizens to deduct their charitable contributions from their taxable income. For most middle-class citizens, charitable contributions go to places like food banks, churches, and local private schools. These donations are probably very necessary for these institutions to continue normal operations. For wealthy citizens, however, charitable contributions can go to nonprofits that focus little on feeding, clothing, sheltering, or housing those in need. Private universities, museums, art galleries, symphonies, and other artsy and elitist establishments often qualify as nonprofits to which gifts are tax deductible.

It is still nice to give money to these artsy and elitist establishments, for they provide cultural enlightenment. However, gifts to such institutions should not be tax deductible. With income inequality increasing in the United States and more than half of all public school students living beneath the poverty line, the government must encourage more philanthropy to go toward causes that fight poverty. Tax breaks for donating to rich nonprofits only help siphon money away from more important causes.

Only after you have helped our nation maintain its infrastructure and its necessary services should you be able to donate to rich nonprofits. You should not be allowed to pay less for the things that matter in order to support institutions that primarily benefit only the wealthy. As such, the government should begin removing tax-deductible status from contributions to rich nonprofits. At the top of the list should be all eight Ivy League institutions.

And, for small-government conservatives out there, altering the tax code to eliminate tax deductions for donations to rich nonprofits could include a change to allow extra deductions for contributions to local charities which have proven themselves to be highly efficient at disseminating aid. This would mean, instead of the government necessarily getting more revenue, that efficient charities and nonprofits would receive more revenue. Services to the poor would be increased, but by charities instead of government agencies.


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    • lions44 profile image

      CJ Kelly 2 years ago from Auburn, WA

      It's all worth it if some disadvantaged kids get to go to Harvard. I hope that's where the $$ will end up. And I agree that large nonprofits (United Way) need to be bypassed for more direct action. Maybe an "Adopt a Neighborhood" program for guys like Paulson (Baltimore's north side?). Zuckerberg screwed up by giving a blank check to the Newark SD. More targeted donations are always better.

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