The House and Senate rushed through a number of different proposals. The one that they settled on taxes schools with endowments per student of at least $500,000. Many of the schools with the highest endowment per student values are liberal arts colleges, so yes, smaller schools are disproportionately affected. Very small schools (with enrollments of less than 500) are exempt.
“Students” means all full-time students; there is no distinction between undergraduate or graduate students. In fact, if you look at the list of institutions that are subject to the tax, it includes schools like Princeton Theological Seminary or Medical College of Wisconsin (which have zero undergraduates), as well as schools like Amherst College or Grinnell (which have zero grad students). Part-time students are excluded.
Some of the affected schools are discussing their estimated liabilities under the new tax.
Harvard: estimated $43 million for FY2017, or around $2,000 per student.
Yale: estimated $25 million for FY2017, also around $2,000 per student
These numbers may be inflated, because FY2017 was generally a good year for endowment returns. In FY2016, for example, the Harvard endowment actually lost money, so their endowment tax liability could have been as low as zero.
Williams: estimated $2.5 million per year, assuming a 7% return, or about $1,200 per student.
MIT: estimated $10 million per year, based on average returns for the past 5 years, or about $ 900 per student.
The Williams and MIT numbers may be more realistic “average” values. Still, if a school now has to pay around $1,000 in tax for every student each year, that seems like a significant added cost that will have to be offset by spending reductions elsewhere.
Trump giveth and taketh. If they stayed in market instead of believing many commentators before the election they made enough in a year to pay the tax for a decade.
The argument here is basically “the endowments had good returns this year, so they can afford the tax”. That argument might make more sense if it was designed as a windfall tax. However, that’s not the case. The tax will continue to apply in the future to all schools that meet the endowment per student criteria, as long as investment return is positive – even if it fails to keep up with inflation.
Nearly all of the targeted schools have been building their endowments since the 18th or 19th Centuries (or, in the case of Harvard, the 17th Century). Their investment planning is very long term – longer than a year, or even a decade. Now they will have to lower their expectations for those returns. It’s going to hurt.
But it will only hurt certain schools (which is the point of this thread: to identify those schools). In terms of absolute value, the endowments and investment returns of schools like Northwestern, Columbia, Michigan, or the University of California dwarf those of small schools like Smith or Trinity University. But Smith and Trinity are the ones getting taxed.
No, the argument is they have assembled excessive funds under the guise of being a tax free non-profit. Many call them hedge funds that dabble in education.
Err, these funds are used for educational purpose. They’re how these universities can be so generous with middle class and upper middle class families.
If that’s the case, then university administrators are shockingly underpaid.
For example, the President of Harvard got $1.4 million in salary and benefits in 2015 (this includes perks like a classy residence in Cambridge). OK, for most people, that would seem like a pretty good gig. http://www.thecrimson.com/article/2017/5/13/tax-forms-2015/
OK, fair enough. The highest paid person at a university isn’t necessarily the President. It could be an investment officer. At many schools, it’s the head football or basketball coach.
But it doesn’t change the point, which is that even the highest paid university staff get peanuts by real hedge fund standards.
Now, if you want to know where the Real Money is, there’s a very simple way to find out. Look where the graduates of elite schools like Stanford, Princeton, or Williams go to work after graduation.
Do they get PhDs so they can work as faculty or administrators at elite colleges? Some do, actually. But they do it because they are passionate about their subject or about teaching – not for the money. At Stanford, Princeton, or Williams class reunions, the alumni who work in academia are the poor ones.
^you seriously think faculty get lavish pay/benefits? Starting salaries for faculty are roughly the same as for graduates of the subject with a BA/BS/MA.
The new tax will likely mean that the targeted schools will become less affordable, while doing nothing to improve affordability at non-targeted schools.
The “endowment per student” measure is a moving target. The updated list below is not definitive, but is my best guess as to the schools that currently have an endowment of more than $500,000 per student. The tax exempts schools with enrollments of less than 500.
Liberal arts colleges (14 total):
Pomona College
Amherst College
Swarthmore College
Grinnell College
Williams College
Wellesley College
Washington and Lee University
Bowdoin College
University of Richmond
Berea College
Smith College
Bryn Mawr College
Claremont McKenna College
Hamilton College (borderline)
Ivies (5 total):
Princeton University
Yale University
Harvard University
Dartmouth College
Univ. of Pennsylvania
Other universities (12 total):
Stanford University
Massachusetts Institute of Technology
California Institute of Technology
Rice University
Cooper Union
University of Notre Dame
Emory University
Washington University in St. Louis
University of Chicago
Trinity University (Texas)
Duke University
Northwestern (borderline)
Specialized schools (5 total):
Princeton Theological Seminary
The Juilliard School
Medical College of Wisconsin
Baylor College of Medicine
Icahn School at Mt. Sinai
Exempt Small Schools (<500 students)
Soka University
Olin College of Engineering
Principia College
Curtis Institute
I think Trinity and a few others could skip the tax by enrolling a few more students.
This would incentive the universities on the cusp to make sure that they take in enough students through their cash cow masters programs so that they are below the threshold.
That would be one way to game the system. Alternatively, a school could completely avoid the tax by enrolling a few less students, if its enrollment was slightly over 500, because schools with fewer than 500 students are exempt. This is the case for Princeton Theological Seminary, as noted in Post #16 above.
A Harvard economist, Prof. John Campbell, has already criticized the tax for creating such “weird incentives”:
How about, I don’t know, maybe spending more of the endowment instead of hoarding it? Harvard, for example, could pay the tuition for every one of its students with just half the annual earnings on their endowment.
I suspect all of these affected schools could easily spend down below 500k per student and still be left with a comfortable endowment that meets their needs.