Congress Should Decide Harvard’s Tax Exemption

National Review Online

Monday, May 05, 2025

 

The war between Donald Trump and Harvard may be entering a new phase. Just weeks after Trump froze $2 billion of Harvard University’s federal funding and placed the rest under review, triggering a federal lawsuit from the university, the president is vowing to strip Harvard of its tax exemption.

 

Stop us if you’ve heard this story before. Once again, Trump is extending powers once used and cheered by his opponents. Once again, there is some policy merit to his position, as well as a key legal precedent on his side. Once again, he is going about this in ham-fisted fashion that could undermine his legal case. And once again, what should happen is to permanently restrict the vast discretion wielded by the executive branch and reclaim policymaking authority that by rights belongs to Congress.

 

We continue to worry that Trump is expanding the unilateral powers of the executive in ways that are likely to be abused by future presidents — especially against conservatives. That remains true even if there is a policy case for what he is doing and even if it may be arguably within powers the law now allows him.

 

The immediate impetus for Trump’s action is the administration’s concern over campus antisemitism and race discrimination in admissions, including an investigation into discrimination by the Harvard Law Review. The story, however, really begins with Bob Jones University v. United States (1983). The Evangelical Christian university in South Carolina, which only began to admit black students in 1971, banned interracial dating or marriage on campus and barred admission of students in an interracial marriage. The Internal Revenue Service revoked its tax exemption for having a racially discriminatory policy, leading to years of litigation that landed in the Supreme Court’s lap in 1982.

 

The problem: the IRS had no statutory authority to withdraw a tax exemption over race discrimination. Indeed, nothing in the Internal Revenue Code said anything at all about revoking a Section 501(c)(3) tax exemption for any public policy reason. We warned at the time that “the danger involved here is that the power of the IRS to make ad hoc law will be legitimized,” threatening “the very process of making laws in this country.” An editorial in Regulation magazine, then edited by Antonin Scalia, described the IRS as “engaging in an audacious bit of activism” that “opened the tax-exemption section . . . to continuing policy making by the IRS and the courts” such that “if the public policy against racial discrimination is thus imported into the internal Revenue Code, then so, presumably, are other public policies that can be identified by the [IRS] or the courts.”

 

Bob Jones University’s position was idiosyncratic, morally indefensible, and hugely unpopular, which made it a hard case in which to defend constitutional principles. Nonetheless, in a courageous if politically ill-considered stance, the Reagan administration sided with Bob Jones and ordered the IRS to reverse course. That decision didn’t last a weekend, but after Reagan backed down in the face of a firestorm, his Justice Department argued that the IRS rule exceeded its authority, requiring the Court to appoint a lawyer outside the government to defend it. At the same time, Reagan called on Congress to give the IRS the authority it claimed but limited by statute to race discrimination.

 

The result was an 8–1 victory for the taxman that didn’t even pretend to apply the law written by Congress, instead citing the “common community conscience,” “fundamental public policy” in other laws against race discrimination, deference to the IRS in construing its statute, statements in the legislative history, and subsequent inaction by Congress — all methods of interpretation the current Court would eschew. Only then-Justice William Rehnquist dissented from empowering the executive branch to revoke tax exemptions in the name of a legally undefined view of the public good, observing that “regardless of our view on the propriety of Congress’ failure to legislate we are not constitutionally empowered to act for them.”

 

The wages of Bob Jones have come due. As John Yoo and Robert Delahunty have argued, if the IRS and the Court were right then, the executive can invoke similar powers today to fight race discrimination and antisemitism, not only at Harvard but at other universities and nonprofits as well.

 

In our view, this shows why the Court’s decision was mischievous and why the Reagan administration was right to resist it. The reasoning of Bob Jones was hard to cabin by reference to any written rule of law, and it will be harder to cabin if it is extended to Harvard. It would put a sword of Damocles over the head of every nonprofit group in the country, a weapon that progressives will not shirk at using against religious institutions and others they brand “racist,” “homophobic,” “transphobic,” or otherwise insufficiently aligned with the latest fashions of the academic left. The benefits of using this weapon today are apt to be outweighed when it is wholly unconstrained tomorrow.

 

If Harvard’s tax-exempt status should be revoked, that decision should be made by Congress, or at any rate under standards written by Congress rather than by the president’s (or the courts’) sense of the “common community conscience.” There is a fair argument that the tax exemption for private universities is counterproductive in today’s higher education system, in which the universities compile colossal untaxed endowments (Harvard’s exceeds $53 billion), receive massive direct and indirect federal subsidies for research and financial aid while depending financially on the tuition of foreigners from nations hostile to us, spend that money employing hordes of bureaucrats uninvolved in teaching anything to anyone, promote doctrines inimical to the values of the Declaration of Independence and the Constitution, and saddle their graduates with exorbitant debt.

 

But that case should be debated by the legislature. It implicates broad questions of public policy. It’s not as if the problems of campus antisemitism and resistance to race-blind admissions are especially unique to Harvard. Congress can decide how to balance the contending issues of tax exemption and subsidy. It can decide whether universities should be treated differently from, say, hospitals or soup kitchens; if it limits rather than repeals the exemption, it can decide what procedural protections to offer universities who are singled out. Just because Harvard richly deserves this doesn’t mean that the law should be made ad hoc, one college at a time, under standards never ratified by the people’s representatives and whose application can’t be predicted in the future.