The Trump administration wants to strip tax-exempt status from thousands of private colleges. This threatens the deduction rich donors use to feel good about buildings with their names on them.
Private universities have operated for decades under a simple model. Charge six figures for tuition. Pay no taxes. Accept donations from wealthy alumni who write off the gift and get a library wing named after their grandfather who made money in textiles. The Treasury looked at this arrangement and decided it needed to end.
Donors who give to schools that lose tax-exempt status can't deduct the contribution anymore. They'll have to choose between writing the check anyway or admitting they only cared about the tax break. Most will discover they cared about the tax break.
Private colleges are now scrambling to figure out what regulations they violated to deserve this. The answer is none. They didn't violate anything. The administration just proposed new rules that redefine what qualifies for exemption. It's like changing the speed limit after you already drove past the sign then mailing you the ticket.
Retail traders are watching this news and thinking it affects them somehow. It does not. You do not donate enough money to any institution to qualify for itemized deductions. You take the standard deduction every year and pretend you understand marginal tax rates.
The real comedy here is that private colleges built entire development departments around the tax code. They hired vice presidents of philanthropic partnerships whose only job was to convince rich people that giving away money saves money. Now those vice presidents have to explain to their bosses that the math broke.
This policy won't pass or if it does it'll get sued into oblivion within six months. But for now we get to watch Harvard pretend it's a victim.
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