Republicans are searching for ways to “pay for” their tax cuts. Democrats want the rich to pay more tax. Here’s a solution that should make everyone happy.
House Ways and Means Committee chairman Jason Smith is suggesting a tax on the $840 billion college endowments. These endowments will soon eclipse $1 trillion in size – which is more money than the entire GDP of many countries.
It’s high time that bloated and entitled universities pay “their fair share” for the government services they use.
Why not? Their professors forever lecture us about tax “fairness,” but the schools where they teach a few hours a week for their munificent salaries are the very embodiment of mostly-white “privilege.” They are are the richest institutions in the world that go untaxed.
The cost of this leakage to the tax base is going to grow exponentially as this generation of billionaires (Bezos, Gates, Zuckerberg and others) pass on trillions of dollars – much of it will enter into the vaults of the universities. These are capital gains that have NEVER been taxes – and never will be.
Why is this a problem?
A good and just tax system has a broad base – so everyone pays – but a low rate so the tax system doesn’t discourage, work, saving and investment. This means no loopholes and carve outs that allow the rich to keep their fortunes out of reach of the tax man.
What makes the college endowment scam even worse is that the preponderance of the dollars don’t go to small colleges or community colleges, but rather the Harvards, Yales, Stanfords and Princetons that are already layered with gold and service the elite of society.
It makes no sense that millionaires and billionaires can make seven, eight and even nine- figure donations to their Alma mater and these funds escape the taxes that all the rest of us pay.
It’s even worse than that. Colleges pay almost no income taxes and generally avoid paying property taxes even though their vast tracts of valuable land are in or near struggling inner cities.
The universities openly boast to their donor base: contribute to us and you can avoid paying the estate tax and capital gains tax on your billions. Why aren’t liberals offended by this tax escape hatch?
I have no problem with a deduction for legitimate charities like soup kitchens and homeless shelters and orphanages. But Northwestern and Stanford need tax breaks? Has anyone been to their glitzy campuses.
There are at least a dozen schools bulging with $10 billion endowments and scores more with more than $1 billion. We should call these schools Loophole U.
What public purpose is advanced by these storehouses of wealth?
Harvard’s near $50 billion endowment is so large that the school could charge free tuition to every student from now until kingdom come – and still not run out of money. Yet Harvard still charges $100,000 a year for tuition and room and board.
But this is the real sin of this unworthy tax loophole. Even with these giant endowments, college tuitions have been rising at two to three times the rate of inflation. The argument that tax-free donations make colleges more affordable has proven to be patently false. The bigger the endowment the more the schools charge students and their parents – and taxpayers.
One of the best ways to help inner cities would be to require all universities (and hospitals) to pay property taxes. This would broaden the tax base in poor cities where nonprofits have grabbed the most valuable real estate. Instead of chasing people out of the cities like Boston, Chicago, Philadelphia and New York with exorbitant taxes, dinging the big U down the street would allow cities to CUT their taxes for everyone else.
By the way, colleges and hospitals make use of city services even more than homeowners and mom and pop businesses do. Why should they not pay for these services?
Richard Vedder a famous economist at the University of Ohio has noted that “one of the most regressive policies in the tax code is the subsidies to the billion-dollar universities. This only Makes the Rich, richer.”
In a famous scene in the movie Animal House, Dean Wormer lectures to one of the students who is facing expulsion: “Fat, drunk and stupid is no way to go through life, son.”
Ironically, that could describe more than 100 overly-endowed universities today that are more like investment houses that happen to have classrooms and students roaming around. Colleges need to pay their fair share, and the revenues should be used to help pay for the Trump tax cuts – which benefit everyone. That sounds fair to me.
Stephen Moore is a senior fellow at the Heritage Foundation and a cofounder of Unleash Prosperity.
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