<p>According to the Harvard Crimson, a Massachusetts legislator recently proposed imposing a 2.5% endowment tax on any school that has an endowment of more than 1 Billion. Although this proposal did not get far in the Massachusetts House of Representatives, I am sure that there will be other proposals of a similar nature in the future. </p>
<p>Any thoughts from CCers on this?</p>
<p>I think the government should keep their fingers out of it. Why is it so bad to have an endowment > $1B?</p>
<p>A higher endowment means more monies available for student scholarships, need-based aid for students from lower income families, campus improvements, etc. I'd rather have the college have it and use it for these purposes than to penalize them and have it go into the government's coffers.</p>
<p>I think the concern they are trying to address is universities sitting on huge endowments but using only a tiny fraction in aid to students while continuing to increase tuition two or three times the rate of inflation. Educational institutions are not required as are non-profit foundations to spend a certain amount of their endowments (5% per year?) to retain their tax-exempt status. It may be possible that the growing threat of some sort of regulation (or just PR-nightmare Congressional hearings) is part of what motivated the Ivies to their newfound generosity. </p>
<p>It would be better for everyone if the top-tier privates voluntarily followed the Ivies' lead rather than federal or state governments stepping in to do it for them. </p>
<p>--K9Leader</p>
<p>David Rockefeller just promised Harvard $100 million. Geez, who needs this less than Harvard? That exceeds the entire endowment of many schools. With in excess of 25 BILLION, it's obscene that Harvard charges anybody tuition.</p>
<p>An arbitrary tax on endowments > $1B would only disincent large endowments - not incent distributions from the endowment. </p>
<p>If they really wanted to incent distributions which is what actually helps people, they might consider taxes on the difference between some reasonable minimum distribution (probably 3.5-5% I'm guessing) and what they actually distributed.</p>
<p>This sounds like a politican who hasn't thought it through trying to garner votes. I still think we're better off keeping the politician's fingers out of it and I don't really like punitive taxes anyway.</p>
<p>
[quote]
With in excess of 25 BILLION, it's obscene that Harvard charges anybody tuition.
[/quote]
Some quick math - </p>
<p>$25B @ 5% annual return = $1.2B
$1.2B / 20K students (undergrad/grad/extension) = $62,500 per student</p>
<p>Of course, Harvard has a lot of expenses as well. I assume the profs are reasonably compensated and facilities are expensive. OTOH, Harvard says it actually has an income of $3B which exactly matches its expenditures.</p>
<p>Emotions aside, I'll bet Harvard actually spends quite a bit of the endowment returns on students directly and apparently it all directly/indirectly.</p>
<p>I know it's apples and oranges, but since the OP asked for comments, I'll just say that today's news that Exxon-Mobil earned $14 milliion per SECOND in the previous quarter has had my head spinning all day. I'm ready to give Harvard a pass.</p>
<p>Edit - I just checked and Harvard's endowment in 2007 is $34.9B.</p>
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<p>I believe that college should be required to utilize a certain %age of their endowment each year, perhaps as high as 5%. But the colleges should choose how to spend this endowment income be it student scholarships, building program, faculty resources, student services et al.</p>
<p>I also wish(and it is an idle one) that big college donors would think more seriously about which colleges they choose. I know that most love their alma mater(s) and the choice to sent them that big check is irresistable. But does HYP really need that $10million gift? How about considering that underfunded public university or quality LAC struggling financially. At some point, when a college per capita endowment is so large, should it even be given a tax deduction? I know that suggestion smacks of social engineering which often has less than desirable consequences.</p>
<p>$34 Billion -- Isn't that about what Citicorp has written off during the past two months? About one-half of Bill Gates' net worth? About what U.S. airlines spend on fuel each month? I mean, it's not that much money. </p>
<p>On the other hand, relative endowment size might serve as a measure of relative educational value (if one reasons that gifts reflect the value alumni place on their university experience). Let's see, Harvard's Endowment is $34 Billion and the University of Massachusetts' is $250 Million. Hmmm, looks like a Harvard alumni figure their education was worth 136 times more. No wonder Harvard receives so many applications!</p>
<p>I think a college should use its endowment however it sees fit, and that the government has no right to stick its fingers into the pot. Endowments are usually managed very conservatively, and rightly so. Are state budgets managed nearly this well? I don't think so.</p>
<p>I met with a representative from my alma mater yesterday, a small LAC with a $1.7 billion endowment. They're committed to spend 4% of this endowment every year. Admissions are need blind and generous merit aid is offered.</p>
<p>There isn't a need-blind school in the country (other than Cooper Union or Olin or, perhaps, the military academies). The small LAC with a $1.7 billion endowment (likely my alma mater as well) actually has the admissions director count the number of "socio-ec" admits even as the process takes place (and they ran the article documenting it in the alumni magazine) - they don't want too few, or too many either (they, like everyone else, have a budget, and they are expected to stick to it.) Isn't it amazing, too, how, when college presidents at these so-called "need-bind" schools announce that they want to admit more low-income students, they "magically" appear in the "need-blind" admissions the following year?</p>
<p>Meanwhile, that same LAC claims to subsidize full-freight students, many of whom don't need the subsidy and would happily pay more, to the tune of more than $25k per student per year, or $100k over four years. This is where the bulk of the endowment earnings go - to subsidize the rich.</p>
<p>Now, it's their money, and they can do with it what they choose (and I'm okay with that). We just shouldn't be confused about how they are choosing to use it.</p>
<p>Newhope, the examples you listed are for-profit companies (I think Bill Gates probably counts as his own corporation <em>j/k</em>). I think the issue with Harvard etal is that they are NOT-FOR-PROFIT corporations who are in fact making huge amounts of money on their endowments while not paying taxes that for-profit companies would pay, like property taxes, for example. If you look at Cambridge MA, a huge portion of the real estate is owned by the two colleges that sit there, and they use services but don't pay property taxes. Now granted, they DO bring revenue into the city in other ways.</p>
<p>First of all, Congrat to all you CCers who failed to rise to the bait (about $34 Billion being a small sum in the grand scheme of things). My point, obtusely presented I admit, is that the national debt rising at $45 Billion PER MONTH (to $9,380 Billion as of today) is a considerably more significant issue than what Harvard does with it's comparatively microscopic endowment.</p>
<p>This whole kerfuffle over endowments reflects nothing other than schadenfreude and a collective inability to reason logically. It is in each university's best interest to spend their endowment at as high a sustainable rate as possible, on projects that will best improve their educational experience and standing in the educational community. Yet legislators talk as if it is in these colleges' best interest to sit on their endowment and watch it. What do they really think? There's some contest about which development office has the bigger pile of hundred dollar bills in the basement to sleep on?</p>
<p>I mean really. The universities in question manage their endowments so that even if the markets tank (and remember, the incredible endowment growth of recent years has come during a major economic boom, and cannot be expected to continue in the long term) they can continue to provide at the same level of service for the long term. Now, politicians (who, by the way, are probably the worst possible model of fiscal prudence of any profession you could possibly choose) are presuming that they know better than the experts who run the endowments themselves how much "can" be spent? And how much should?</p>
<p>The hubris is overwhelming. More annoying still is when it is all passed off as some kind of action for the public good, when any reasonable person can see it is nothing like that - much more like simple jealousy.</p>
<p>MADad: Frankly, I'd prefer that Harvard increase its tuition to the 100k+ it actually costs to educate each student, and use all that extra money to substantially increase financial aid for students. There's no need for the sons and daughters of multi-millionaires to be subsidized 50k by the endowment to be educated at Harvard when their family has more than enough money to pay full cost and probably throw in some donations.</p>
<p>And I say this as someone whose parents would probably have to pay that full freight (and whom, by the way, also think that it's bad policy to be subsidizing them and other people able to pay).</p>
<p>
[quote]
There isn't a need-blind school in the country (other than Cooper Union or Olin or, perhaps, the military academies). The small LAC with a $1.7 billion endowment (likely my alma mater as well) actually has the admissions director count the number of "socio-ec" admits even as the process takes place
[/quote]
</p>
<p>mini I don't know what your alma mater is. Mine is in the midwest. I did question the alumni representative about this, and it was her understanding that the financial aid forms went to a financial aid counselor and the essays went to another admissions counselor as soon as they came in the door. However, she was going to check on this and get back to me, so I'll post an update if/when I get one.</p>
<p>Colleges usually donate some money to cities in one way or another in lieu of taxes. I know when Harvard wanted to bury a road so that students wouldn't have to cross a busy road to get to the science center they paid for the road improvements themselves. Our local colleges often do things like pay for planters, donate to local events, or make their facilities open to their immediate neighbors.</p>