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Higher Education Watch
House Probes College Endowments

The fantastic wealth held by American university endowments has long been shielded from federal taxation on the assumption that non-profit educational institutions are a good deal for the public, educating future workers and creating new knowledge at relatively low cost. But as tuitions continue to rise with no end in sight—funding soaring administrative salaries, luxurious amenities, and costly athletic programs—even as many campus war chests seem to overflow with cash, lawmakers are re-visiting the endowments’ tax exempt status. The Washington Post reports:

One of the most polarizing issues in higher education took center stage on Capitol Hill on Tuesday as House members questioned whether universities could do more with their tax-exempt endowments to help families struggling with the high costs of college.

Wealthy universities, in particular, have drawn criticism from lawmakers for raising tuition far in excess of inflation while sitting on hefty endowments. Congressional Republicans have asked 56 private universities, each with endowments exceeding $1 billion, for information about the use of that money. Elite institutions have derided the attention on their endowments as misguided, arguing that they are not savings accounts that can easily be drawn down.

While lawmakers aren’t girding to sic the IRS on the Ivory Tower, they do seem prepared to brandish their taxing power as a negotiating tool as they lean on administrators to find ways to restrain the growth in college costs.

This is on the whole a worthwhile endeavor for Congress. Wealthy colleges increasingly seem to offer a luxury service available only to a privileged slice of the population, raising the question of why they are privy to such hefty tax subsidies. And the public is ultimately on the hook for a large share of tuition increases through federally subsidized student loan programs (which are themselves one of the principal drivers of tuition hikes).

The ideal outcome of Congress’ inquiry would not be a massive new endowment tax, but a negotiated settlement, where colleges are permitted to retain their tax status in exchange for meaningful commitments from academic leaders to rein in their bureaucracies, open access to more of their courses to the public, and increase financial aid offerings to students in need.

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  • WigWag

    Nope; negotiations won’t get the job done. Congress should impose an excise tax of ten percent on the principle of any university endowment exceeding $500 million. The funds should be put into a fund designed to support genuinely needy and deserving students at America’s community colleges.

    Not only would the needy students be better off, so would the universities paying the tax. Without their massive endowments they would no longer be able to afford so many of the useless departments that lower the intellectual caliber of the institution. No more black studies departments; no more women’s studies; no more Jewish studies, holocaust studies or other ridiculous ethnic studies programs.

    Elite institutions can afford these Departments of racial, ethnic, religious and gender grievance in large part because of their enormous endowments.

    Cut the endowments down to size and watch these institutions become better, not worse.

    • Andrew Allison

      $500 million seems unduly generous to me — how ’bout $100 million? As an alternative, how about eliminating the tax deduction for contributions to one’s Alma Mater? I mean, if you love her that much . . . US higher ed is as corrupt as your average Banana Republic, if not more so.

      • Fat_Man

        $2.75.

    • Tom

      Actually, here’s a better idea. Cut off all federal student aid to any college with an endowment of more than $100 million dollars. This way, we don’t develop an exception to charitable giving that could bit people on the tail later, and it gets to the heart of the problem.

  • J K Brown

    After a brief respite, the universities are just getting back to their medieval roots

    The medieval university differed in many respects with our idea of a modern university. It was primarily a guild of teachers and scholars, formed for common protection and mutual aid. It was a republic of letters, whose members were exempt from all services private and public, all personal taxes and contributions, and from all civil procedure in courts of law. The teaching function was secondary, and often entirely overlooked. The Scottish university from the beginning, however, emphasized the teaching function, and created an atmosphere academic rather than civil or political.

    They are also not unlike the 8th or 9th century monasteries in Anglo-Saxon Britain that accumulated great wealth and were depositories for the “spare” heirs of the nobility. Even then kings would on occasion confiscate monasteries and then sell them back to the church. It’s an age old “savings” system for the rulers.

    • seattleoutcast

      Believe it or not, the “medieval university laid far greater emphasis on science than does its modern counterpart and descendent.” Although I got that from Wikipedia, they have the source:

      Edward Grant, “Science in the Medieval University”, in James M. Kittleson and Pamela J. Transue, ed., Rebirth, Reform and Resilience: Universities in Transition, 1300-1700, Columbus: Ohio State University Press, 1984, p. 68

      • Jim__L

        But… but… but… George Bernard Shaw and H L Mencken have made snarky comments about how stupid and anti-science medievals were, especially churchgoing medievals! What you’re saying can’t be true!

        • seattleoutcast

          Ah, that wonderful Shaw. He was the first, I believe, to advocate the gassing of unproductive people. How scientific.

  • jeburke

    The trouble with this is that all colleges have become insanely expensive, whether or not they have big endowments or any endowments. Those with big pots of dough — Yale, Harvard, etc. — really do use it to offset the costs. Two-thirds of Yale students, for example, receive Yale-financed financial aid.

    In any case, if I want to leave my estate to Yale, or simply contribute a few hundred a year to the alumni fund, I’m going to be mighty ticked off if Congress feels like confiscating it.

    • Andrew Allison

      A 10% excise tax is very, very far from confiscatory. Perhaps you should be thinking more about what your Alma Mater is doing with the money (which was, I think, the thrust of the post).

    • Fat_Man

      Yale is ground zero for the social justice warriors. Nukeing the site from orbit would be the only way to be sure.

  • Fat_Man

    The colleges are now a danger to society. a training ground for SJWs and entitled idiots. They have abused their tax exemption. There are at least three famous institutions (Columbia, NYU, USC) where foreigners are 25% of the students. I should pay taxes to educate foreigners? I don’t think so.

    Henry VIII did it the right way. Shut them down, confiscate their endowments, terminate their tax exemptions, and other tax benefits like deductibility of contributions. Impose rigorus wage and price controls. Plow the land under sow it with salt.

  • FriendlyGoat

    Every organization with a tax exemption should have its finances scrutinized frequently, rigorously and permanently. When the Congressional Republicans get done harassing the educational institutions they consider to be left-wing hothouses, do you suppose they will take an equally critical look at the right-wing hothouses also known as churches and independent ministries? Maybe a few “think tanks” and educational dandies like the NRA?

    • Jim__L

      There is a very useful distinction to be made between tax-exempt organizations that have federal aid lavished upon them, and those who are categorically denied federal aid even though they provide exactly the same services (education) that private colleges do.

      FG, how can any honest observer come to any conclusion other than that your philosophy is a combination of anti-church bigotry and mindless conformity to Leftist ideology?

      • FriendlyGoat

        I’m FOR churches which do good work and FOR secular charities which do good work. When it comes to tax exemptions, Reagan was right about “trust but verify”—-although he didn’t have the judgment to realize that tax exemptions were an appropriate subject for the saying.

        We should PUBLICLY know all the details of the Clinton Foundation and the Trump Foundation and the Gates Foundation—–AND, the Kenneth Copeland Ministries (as one example), AND Franklin Graham (as another) AND the denominational churches AND the independent husband-wife-as co-pastor megachurches. When they do good work, we should all have enough detail to applaud them for it. When they are scams or political influence vehicles or personal enrichment vehicles, they should not have exemptions.

        • Jim__L

          You make some interesting points about the Gates Foundation.

          However, some distinctions need to be made. Strict regulatory compliance is a form of steeply regressive taxation — it’s far easier for large organizations to fulfill than small groups. And remember, the power to tax is the power to destroy. Thus, taxing churches is a violation of First Amendment protections.

          Churches I’ve been a member of actually make a huge effort to be transparent to their congregations about how they spend money, and largely self-correct when they aren’t. A government auditor — especially one with a political axe to grind, about gay “marriage” for example — would not be a constructive addition to the mix.

          • FriendlyGoat

            Your guy Donald has promised to try to repeal the so-called Johnson Amendment which prohibits churches and others with tax exemptions from advocating for or against particular candidates for public office.
            My position would be that it’s preferable to repeal the tax-exempt status of any organizations altogether which seek to engage in such activities. My grounds for that is that political activity is not spiritual in nature, is not educational in nature and is not charitable in nature.

            Further, many church members themselves do not understand that converting their congregations from Christianity to political clubs is poison to their own spiritual well-being and that of their churches. One only has to look at the degree of politically-polarized rancor in secular life to know that taking this into the church will do nothing but push Jesus and the Holy Spirit out the windows.

            As for taxing church corporations themselves, there is no particular reason for contributions to churches to be deductible from taxable income of the contributors. First of all, this only benefits people who itemize their deductions (generally higher-income people) and not those who take the standard deduction. Secondly, it is not an unconstitutional infringement on religion to simply tax all income irrespective of whether some people choose to spend some of their after-tax dollars at church.

            As for income taxes to be paid by a church, they’re not supposed to “make money” in the first place. Those not showing a profit after the deductions for their facilities, reasonably-compensated staff and charitable good work would never have an income tax liability anyway.

          • Jim__L

            Why do Teachers’ Unions get to endorse candidates, if tax-exempt status should exclude one from being able to do so?

            Churches whose budgets are in surplus can grow, or save for a rainy day. This is not a bad thing. Paying dividends to large donors would be a bad thing, which is not what any churches I’m aware of are up to these days.

            See my earlier comment — “the power to tax is the power to
            destroy”. That is the particular reason that contributions to churches
            should not be taxed.

            Further, taxing charitable contributions is bad because it weakens civil society, and it also presumes that your income is the property of the government’s first and foremost. That is, bluntly, evil.

            The standard deduction is basically a gift to those who do not contribute to charity. Otherwise it is mathematically equivalent to simply boost all tax brackets by the amount of the standard deduction.

            As far as political clubs go — would you have said that the Reverend Martin Luther King Jr. was too political?

            I know you’re really turned off by the fact that most churchgoing Christians disagree with you on many political issues. I suspect that most of them could get over your economic Leftism; it’s your social Leftism that feels (at best) like you’re not paying attention when the Word is being spoken, or (at worst) feels like a betrayal of what other congregants believe, especially when you advocate the kind of government interference in religion that our current administration has shown itself all too willing to abuse, to the great harm of many conscientious Christians and our families.

          • FriendlyGoat

            You have been talking to me for a long time and the paranoia that the rest of us citizens are out to get you and persecuting you because of your church is just over the top. I hope your talk is not indicative of a “norm” in your community.
            I grew up from early childhood to middle age in and around churches—-several kinds. None of them were speaking then of broad-brush “leftism” as the big evil of our time (as you constantly do) and most of the church people I ever knew would have (then) been reluctant to even remotely identify with the kind of talk now common on the right side in the age of Trump.
            Knock off the pity-party. Except to the extent that you wish to assault the rest of us by shilling for a widening wealth divide, letting corporations run over us, and promoting bigotry and discrimination, the wider world seriously does not care what you do in church. To the extent your “outreach” has narrowed down to a focus on those kinds of public-policy meddling, then—-no—we don’t wish to keep subsidizing it.
            Remember, it’s your guy Donald throwing down the gauntlet on this issue.

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