University Tax Flunks the First Amendment Test

The levy on investment income overwhelmingly targets liberal institutions. The key to overturning it will be convincing the courts.

How about a sweatshirt tax?

Photographer: Michael Fein/Bloomberg

The new federal tax on the investment income of universities with endowments of more than $500,000 per student is terrible policy, raising minimal revenue while imposing costs on financial aid.

But it’s also something much worse: To the extent it targets institutions whose faculties skew liberal, the law violates the First Amendment.

It’s squarely unconstitutional for the government to impose taxes on the basis of the views expressed by the entities being taxed. Although it might be a challenge to prove it in court, it is common sense that the law was designed to express conservative resentment against the academy.

Unlike most tax increases, the exact identity of who would be paying the bill for the endowment tax was well known. Before the law’s passage, the Chronicle of Higher Education -- the Variety of the university world -- published a list of institutions that would be affected. It included first a list of 61 entities that would have to pay if the threshold had been $250,000 of endowment per student, then a list of 27 that would be hit by the $500,000 bar that was eventually adopted. (Disclosure: My institution, Harvard University, is on both lists.)

It hasn’t escaped anyone’s attention that those institutions were overwhelmingly ones perceived as liberal, especially in Republican circles. As the Washington Post pointed out in a trenchant article, a recent poll by the Pew Research Center showed that 58 percent of Republicans and Republican-leaning independents now believe universities “have a negative effect on the way things are going in the country” -- up from 37 percent a couple of years ago. Of these same conservatives, 36 percent say the effect of universities is positive, compared with 54 percent in the previous poll.

Matthew C. Klein, for FT Alphaville, put it more bluntly, connecting the dots: “As thoughtful proponents of the endowment tax explained off the record, they want to use fiscal policy to punish people with views they don’t like.”

Proof for the ideological character of the tax can be gleaned from Republican efforts to exempt two conservative institutions. One involved an amendment introduced by Senator Pat Toomey of Pennsylvania to exempt Hillsdale College of Michigan, a conservative institution supported by Education Secretary Betsy DeVos. The amendment would have excluded institutions that refuse federal aid -- and Hillsdale, which rejects federal funding as a matter of conservative principle, was the only such institution on the list. After the threshold was raised from $250,000 to $500,000, leaving Hillsdale out, Democrats were able to attract enough Republican votes to pass an amendment reversing Toomey’s.

The other carve-out, which came even closer to becoming law, was aimed at Berea College, a conservative Christian institution in Kentucky. In order to exempt Berea, which is free for its students, the reconciliation bill that passed the House and would have been adopted in the Senate included language that applied the investment income tax only to institutions the charge tuition. This would have taken effect were it not for Senator Bernie Sanders of Vermont, who argued that the carve-out violated the Byrd Rule, a piece of Senate procedure that says “extraneous matters” may not be included in reconciliation bills. The Senate parliamentarian ruled that the exemption had to go.

It is black-letter law that the government may not punish speech because of its content or because of the viewpoint of the speaker. Imposing a tax is certainly a form of government punishment. Thus, if the government chooses to tax certain identifiable institutions because it doesn’t like the political expression of their employee-professors, it is violating the freedom of speech.

The logic of the First Amendment rule is straightforward. The government may sponsor and even subsidize speech that it likes. But it cannot abridge speech it disfavors. And it cannot penalize certain speech based on content or viewpoint.

To win a suit based on this principle, the affected universities would have to convince the courts to acknowledge what everyone already knows is true: The tax bill was intended to punish institutions perceived as liberal. That can be an uphill battle if legislators have been careful to couch their intent in neutral rhetoric, or if they have in fact said nothing at all.

But circumstantial evidence can count in ascertaining legislative intent, as we have seen from the judicial opinions blocking various versions of President Donald Trump’s ban on travel visas for people from majority Muslim countries. The Hillsdale and Berea carve-out attempts are in the legislative record, and the latter may even recur. Although ultimate victory in the courts is by no means assured, it is also far from unthinkable.

My conservative Harvard Law colleagues Jack Goldsmith and Adrian Vermeule have written that the universities’ liberalism has limited “their appeal to federal elected officials who do not share those sectarian views and who are less and less willing to pay the universities to trumpet them.” A mere lack of sympathy would not be unconstitutional, nor would a reduction in federal money for education.

But this law doesn’t reduce federal aid to universities. It imposes a selective tax on some schools based on a perception of the professors’ and the institutions’ politics.

And that’s a constitutional violation that the courts should find a way to vindicate.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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