<p>First, it is a misconception that universities pay not taxes. All major universities pay substantial taxes, just not income taxes. MIT pays over $25 million a year in property taxes alone to the city of Cambridge, and Harvard pays around $15 million. In addition, both schools make substantial payment in lieu of taxes (PILOT) for city services. </p>
<p>They are also among the largest employers in the local area and pay vast amounts in salaries, wages, and fringe benefits. Harvard has over 16,000 employees and MIT over 10,000. These jobs generally pay much higher salaries than average jobs in the state. They are also much less affected by economic downturns. It is also estimated over 100,000 Boston Area jobs are the direct result of Harvard and MIT technology or started by Harvard/MIT faculty or alumns. </p>
<p>Purchases of goods and services, construction costs, and other capital expenses by universities help fuel the areas economy. Both MIT and Harvard each spend around $1 billion yearly on goods and service that directly impact the local economy. The top 8 universities in the Boston area generated over $7 billion in business for the local economy annually. </p>
<p>If a tax on wealth is going to be charged to universities, there is no reason that churches, charitable foundations and many other non-profits should not be taxed as well. There is certainly bigger fish to fry if one is looking at generating increased tax revenue. Some of the largest US corporations pay minimal income taxes. Microsoft, one of the largest employers In Washington State, pays no state income taxes, all its sales of licenses are channeled through a corporation in Nevada, which pays no local taxes. IBM saves billions annually in federal income taxes through the use of foreign susbsidiaries. </p>
<p>By every economic measure, imposing a tax on the largest university endowments would results in very questionable benefits and definitive negative effects. </p>
<p>It is hard to see how local or state governments would do a better job at allocating the funds for educational purposes that they would divert from the endowments. </p>
<p>If the pupose is to fill a projected shortfall of state and local tax revenues because of the poor economy, then the tax is even more questionable. This would effectively be a wealth tax, socking it to biggest contributors to the local economy. The consequences would be far worse as the rapidly growing budgets of the universities would be trimmed to accommodate the tax. Over a third of the operating budget of major universities schools directly comes from their endowments, as compared to less than 15% twenty years ago. A tax on endowment would be simply passed on as a cost of doing business and have a negative multiplier effect. Any reduction in endowment funds would result in less spending on everything from new construction, purchase of outside services, hiring of new employees. It would also result in fewer research contracts with corporations or the Federal government as the necessary facilities would be delayed. </p>
<p>There is simply no credible economic analysis that such a harebrained scheme would have any net positive impact. Some people promote the tax as a form of punishment on greedy universities, which is simply naive. Executives of universities make only a tiny fraction of the incomes of corporations of similar size. They don’t get free stock options or sell their shares at huge profits before the organization tanks. Universities don’t get any bailouts when they screw up and therefore have to be conservative in their spending. It would be quite an irony to punish universities for prudent financial management just as entire industries are being shaken by mismanagement or outright fraud.</p>