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Some politicians in Massachusetts who can't stand to see so many billions dangling just out of their reach, have proposed a new tax on large university endowments. They don't have a cute name for it yet, so let's call it an "endowment windfall tax."</p>
<p>Under their proposal, all endowments over a billion dollars would be taxed at 2.5 percent, a rate any wealthy individual or corporation would salivate over. The tax would net the state over $1.4 billion a year, which is a lot of money considering that Boston currently receives about $1.8 million a year from the school.</p>
<p>So how did Harvard, which is basically the Exxon-Mobil of higher education (minus the accusations of price-gouging), react to that proposal? In a word, conservatively.</p>
<p>"You'd be taxing success here," Kevin Casey, Harvard's associate vice president for government, community and public affairs complained in a quote that will soon be framed and hung in my office. "Over time, this would put us at a real competitive disadvantage, which would drastically hurt the Commonwealth."</p>
<p>No Kevin, you're looking at it the wrong way. These politicians aren't trying to hurt you, they're just trying to level the playing field. Greater Shrewsbury Liberal Arts Community Technical College for Women down the road is struggling and here you are making billions. If they could just redistribute some of your profits to GSLACTCFW then everybody would be happy.
<p>As usual, Glenn Beck makes ultimate sense. It's OK when it happens to someone or some other corporation, but when it happens to you...the hypocrisy!</p>
<p>Mr. Beck is saying that the government should tell entities that have money how that money should be spent. Curious perspective for a Conservative.</p>
<p>Unless the author was being sarcastic, he is making an absurd argument. You don't tax Microsoft an extra amount and then give the money to its competitors. Analogies aside, it doesn't serve the public good to have Harvard and MIT be weakened and have a bunch of smaller colleges be strengthened. Harvard and MIT have such a huge impact because everything is cutting edge there and because of the possibilities for taking on huge projects and soliciting the best minds to work together on it. If the resources and brainpower were more dilute, a lot of things Harvard and MIT achieve wouldn't be possible. Think what would have happened if instead of the Manhattan project, all the best minds were spread throughout the country and worked as individuals.</p>
<p>I agree that it is an odd point-of-view for a conservative.</p>
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These politicians aren't trying to hurt you, they're just trying to level the playing field. If they could just redistribute some of your profits to GSLACTCFW then everybody would be happy.
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<p>Would everybody be happy? Would the thousands of donors who contributed to the Harvard "warchest" be happy to see the funds they dedicate to a specific purpose be diverted to GSLACTCFW? </p>
<p>When people and ... politicans attack institutions such as Harvard for their lack of largesse, they usually fail to understand that Harvard does not have one gigantic endowment that can be spent without restrictions. The reality is that the endowment comprises thousands of restricted mini-funds.</p>
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I have no problem with Harvard posting an unbelievable 23 percent rate of return on their money last year. The truth is, I'm jealous of it.
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A tangential question - can we find out how Harvard invests the money? No doubt Harvard might have an economist or two they can tap to recommend the investment strategy but if they make it public, I'd consider mirroring it (on a micro scale of course).</p>
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You'd be taxing success here...(Harvard)...
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Yeah - like the progressive income tax the rest of us have to pay.</p>
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As a conservative, I don't believe in taxing anyone just because they have a lot of money or are an easy target. That applies to individuals, businesses and universities. I believe that taxing success discourages success, and that's not what America stands for.
...
Besides, Harvard, you're in the wealthiest 1 percent. Isn't it time to help those who are less fortunate?
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He's sending a couple of mixed messages here.</p>
<p>IMO - the larger the endowment, the more they'll have to fund their programs and offer free tuition to students from families of higher and higher thresholds of income levels. I think the government should keep their sticky fingers out of it.</p>
<p>The donations rich people make to Harvard, so that their kids can gain admission there, are tax deductible. You may think that taxation is theft, but if you accept that there should be taxation, then it's clear that the government is subsidizing Harvard's endowment and has been doing so for a very long time. Harvard's endowment is so large because of its special tax status.</p>
<p>"The donations rich people make to Harvard, so that their kids can gain admission there, are tax deductible."</p>
<p>Most alumni donations don't help someone's kid get into the school. Getting in as a development admit usually costs someone at least a million dollars. A significant amount of alumni donations are under a million dollars, and a lot of the huge donations by alumni have nothing to do with getting their kid into the school. Why would Rockefeller donate 100 million to his alma mater to get his kid in when he could have just donated 1 million.</p>
<p>"These politicians aren't trying to hurt you, they're just trying to level the playing field."</p>
<p>Why does a conservative want to define a level playing field as one where every player is equally successful? Harvard is beating the pants off GSLACTCFW in the open marketplace. Too bad for GSLACTCFW.</p>
<p>"Harvard's endowment is so large because of its special tax status."</p>
<p>It is? Then how come GSLACTCFW doesn't have the same size endowment? It has the same special tax status Harvard does.</p>
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"Harvard's endowment is so large because of its special tax status."</p>
<p>It is? Then how come GSLACTCFW doesn't have the same size endowment? It has the same special tax status Harvard does.
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<p>I welcome you to do a little thought experiment where donations to Harvard are not tax deductible, where for that past however many years rich folk had to donate to Harvard with after-tax dollars. </p>
<p>I also welcome you all to do a thought experiment where for the same however many years Harvard did not give preference to legacies, but instead admitted based only on student's merit.</p>
<p>Let me be even more clear. The legacy system exists largely because of fundraising needs. Legacies donate on aggregate to maintain the legacy preference. Even though to guarantee one specific kid will get in, you might need to donate $10 million or whatever, the legacy system exists to encourage donations. If Harvard got rid of legacy admissions, donations would drop.</p>
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The donations rich people make to Harvard, so that their kids can gain admission there, are tax deductible. You may think that taxation is theft, but if you accept that there should be taxation, then it's clear that the government is subsidizing Harvard's endowment and has been doing so for a very long time. Harvard's endowment is so large because of its special tax status.
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<p>Perhaps in some cases, but that is far from being universal as many donors might not have escaped various levels of taxation, including double taxation of dividends. In addition, that is not very relevant to the attempt by the Mass taxing authorities to exercise their right to what amounts to disguised confiscation. </p>
<p>The economic impact of Harvard goes well beyond its endowment spending. Something that Harvard should remind the Mass comrades by outsourcing services and purchases of goods for a few months. </p>
<p>Where is Reverend Jonathan Mayhew when Harvard needs him? :)</p>
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Harvard's endowment is so large because of its special tax status
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If this is really an issue (and it would have wide-ranging impacts on any not-for-profit), then shouldn't the cap be not on the college but on the donor - i.e. only allow a tax deduction up to a certain max?</p>
<p>And if that were done, I agree that it would likely have some impact on the amount that ends up getting donated. The question then would be, what's the correct answer?</p>
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Most alumni donations don't help someone's kid get into the school. Getting in as a development admit usually costs someone at least a million dollars. A significant amount of alumni donations are under a million dollars, and a lot of the huge donations by alumni have nothing to do with getting their kid into the school. Why would Rockefeller donate 100 million to his alma mater to get his kid in when he could have just donated 1 million.
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<p>What? Uh, so it should only be non-tax-deductible to give to a school if giving is about preferential admission. Hmmm...that's a bizarre take -- i.e. that we'd be able to divine the motivations of donors.</p>
<p>Anyway, the point kenf1234 made is absolutely on point. Donations to colleges are tax-deductible. Similarly donations to foundations are tax-deductible. Foundations are allowed to invest their money and earn a rate of return -- however high they can get; however, they MUST by law give away a certain portion of their assets away every year to maintain their status.</p>
<p>Anyone arguing that this is just government being jealous and rapacious is missing the real policy picture. Either exceptions should be made for foundations to these rules or the universities should start living by the rules.</p>
<p>There are other additional policy points to make. The government invests prodigiously in the research infrastructure of this nation and it spreads the wealth. This is good for the nation as a whole. When ultrarich universities can use non-taxed money that they amass at a huge rate and that is not subject to the rules others live by, they bid up the salaries of professors from less wealthy colleges and basically make the entire system more expensive. This is not good for the public good.</p>
<p>One can't stop the ultrarich universities from doing their thing in terms of collecting endowment money, but it doesn't mean it's fair or good to let them off the hook of paying taxes at a fair rate.</p>
<p>kenf1234: What exactly is your point? Encouraging donations is not and never has been illegal or immoral, nor has it ever been anyone other than a given college's business who that college chooses to admit.</p>
<p>The bottom line is, every college is tax-exempt, and they all have the ability to attract donations like Harvard does. This isn't about tax exemptions; this isn't about the immorality of legacy admissions. This is about Mass. politicians seeing a resentment and a lot of money sitting around, and deciding to capitalize on it.</p>
<p>Foundations and universities are fundamentally different entities, and the money they amass is used for fundamentally different purposes. A foundation exists for the primary goal of giving money away; this is obviously not true of a university. A university endowment is used to provide a cash stream for the operations and expansions of a university, and is held and spent at a level that will allow it to continue to support the university's activities in perpetuity. That is why universities are not and should not be forced to spend a fixed amount of their endowment each year - because such spending may or may not be sustainable, and endowments aren't about spending, they're about sustaining.</p>
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[QUOTE=BedHead]
There are other additional policy points to make. The government invests prodigiously in the research infrastructure of this nation and it spreads the wealth. This is good for the nation as a whole. When ultrarich universities can use non-taxed money that they amass at a huge rate and that is not subject to the rules others live by, they bid up the salaries of professors from less wealthy colleges and basically make the entire system more expensive. This is not good for the public good.
</p>
<p>The rules "others" live by? By others, do you mean that certain ultrarich universities are amassing tax-free dollars that other universities cannot? Or are you still comparing to foundations and other charitable organizations, that as I pointed out are fundamentally different entities from universities?</p>
<p>Last I checked, every university was tax exempt. Ultrarich colleges are able to bid up salaries not because they are tax free - all other colleges are too - but because they are more successful at what they do.</p>
<p>Your assertion that rich universities having more money makes the system more "expensive" is a little bit ludicrous - it is certainly more "expensive" on the whole, in that it takes more money to run the nation's higher education, but that extra money is in the form of voluntary donations. So unless you propose banning donations, the fact that the system is getting more "expensive" is not really something that can or will change. Furthermore, I would assert that the concentration of the best professors in the best research environments - and remember, not all of the buying of professors occurs at rich schools - is the best allocative efficiency we can achieve in higher education's research.</p>
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Foundations and universities are fundamentally different entities, and the money they amass is used for fundamentally different purposes. A foundation exists for the primary goal of giving money away; this is obviously not true of a university. A university endowment is used to provide a cash stream for the operations and expansions of a university, and is held and spent at a level that will allow it to continue to support the university's activities in perpetuity. That is why universities are not and should not be forced to spend a fixed amount of their endowment each year - because such spending may or may not be sustainable, and endowments aren't about spending, they're about sustaining.
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<p>But none of this means they deserve to be tax-free, per se. If you understood non-profit law, you'd know that non-profits have real constraints on amassing assets. Foundations for instance are allowed to do so within the bounds of the strictures I talked about. As you laid out your case, universities are deserving of a very great exception. Why should they be? What special desert do they have?</p>
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Last I checked, every university was tax exempt. Ultrarich colleges are able to bid up salaries not because they are tax free - all other colleges are too - but because they are more successful at what they do.
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<p>Yes, I only used ultrarich as an adjective for emphasis; it does in fact apply to all schools.</p>
<p>The university infrastructure is largely publicly supported, even in the case of private universities. These schools are more successful, as I said, in flouting the intent of laws that others must abide by as well as just generally being more successful. It's a fairness issue. Just because the burdens of universities are timed differently does not mean they should be able to not live by laws and rules that other non-profits must live by.</p>
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In addition, that is not very relevant to the attempt by the Mass taxing authorities to exercise their right to what amounts to disguised confiscation.
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<p>Taxation is confiscation. There is no distinction, in theory or in practice.</p>
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If this is really an issue (and it would have wide-ranging impacts on any not-for-profit), then shouldn't the cap be not on the college but on the donor - i.e. only allow a tax deduction up to a certain max?
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<p>You can structure tax policy however you like. My point is that Harvard has benefited from the tax structure, its endowment is so large because of that tax structure. Saying, "how dare you tax me!" isn't reasonable, since the endowment is so large precisely because of how the tax system has benefited them so tremendously. They want it both ways. </p>
<p>Whether Harvard ought to be taxed in that way is a separate question, of course. But the idea that it is any more unfair than any other type of taxation is unreasonable.</p>
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Foundations and universities are fundamentally different entities, and the money they amass is used for fundamentally different purposes. A foundation exists for the primary goal of giving money away; this is obviously not true of a university. A university endowment is used to provide a cash stream for the operations and expansions of a university
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<p>Yes, but the Harvard endowment has grown far beyond the size of what anyone ever imagined a unviersity endowment could grow to.</p>
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Under their proposal, all endowments over a billion dollars would be taxed at 2.5 percent
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So I wonder if the state of California should tax UC Berkeley's endowment ($2.5B in 2006) or UCLA's ($1.5B)? Oh wait, that would be the state taxing itself.</p>
But none of this means they deserve to be tax-free, per se. If you understood non-profit law, you'd know that non-profits have real constraints on amassing assets. Foundations for instance are allowed to do so within the bounds of the strictures I talked about. As you laid out your case, universities are deserving of a very great exception. Why should they be? What special desert do they have?
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<p>The reasoning for them being tax free is that education supports the public good. However, we're not arguing about why universities should be tax exempt - they already are. We're arguing about whether or not, and why, certain universities shouldn't. You brought up the idea that certain universities spend less than foundations are required to spend. I pointed out that university endowments exist for a fundamentally different purpose than foundations.</p>
<p>Foundations exist to give money away. Endowments exist to maintain a high standard of operation for a university in perpetuity. That fundamental difference is why the foundation giving requirement should not apply to universities. If a foundation isn't giving its money away at a certain rate, its basically a useless tax-free aggregation of money. But if a university endowment isn't spending its money at a certain rate, it means that somebody decided that that rate was not sustainable in the long term - especially since, as was pointed out before, an endowment is not some large slush fund but rather is made up of myriad smaller funds with spending restrictions.</p>
<p>
The university infrastructure is largely publicly supported, even in the case of private universities. These schools are more successful, as I said, in flouting the intent of laws that others must abide by as well as just generally being more successful. It's a fairness issue. Just because the burdens of universities are timed differently does not mean they should be able to not live by laws and rules that other non-profits must live by.
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<p>You keep speaking of all non-profits as the same things. This is the mistake. The goal of a university endowment is not simply to amass money; it is not simply some tool of monetary redirection. The goal of an endowment is to provide operating budget to its university, at as high a sustainable level of possible. I keep repeating this point, but it is the key: you cannot treat foundations and university endowments the same because at their core their goals and functions are different.</p>