Earlier this month, House Republicans proposed a tax on investment income from private university endowments with over $100,000 per full-time student. That threshold has since been amended to universities with endowments amounting to more than $250,000 per full-time student. Nevertheless, the plan has sparked a debate about whether university endowments should be taxed or not, with valid arguments from both side. This collection of articles, curated by The Philanthropic Enterprise, is a series of readings that highlight different voices and facets of the issue.
1. A “Thoroughly Satisfactory and Permanent Remedy”: The Twentieth Century Invention of the American University Endowment
From History of Philanthropy
By Bruce Kimball
Kimball traces the origins of large university endowments. While endowments have existed all the way back into the Middle Ages, they began to grow rapidly in size in the 1970s due to changes in university financial strategy. These structural changes allowed universities to capture growth in the bull markets throughout the 1980s and 1990s. The resulting large endowments have drawn criticism, but Kimball advises caution in undermining. Paraphrasing Harvard President Charles Eliot Kimball writes, “endowments enhance the autonomy, stability, and flexibility of colleges and universities in long-term financial planning. The other major sources of revenue – tuition, grants, or gifts for current expenses—are subject to whim, political partisanship, and market forces. Endowment enhances the self-determination and financial stability of a college or university and provides it with the capacity to pursue opportunities and discretionary goals.”
From The Wall Street Journal
By Thomas Gilbert and Christopher Hrdlicka
Gilbert and Hrdlicka defend the proposed tax on private university endowments. They believe that the tax will benefit higher education in the long run and describe the endowment-university relationship as “a tax-free hedge fund that happens to have a university.” In this light, a 1.4 percent levy on investment income would work to curb risky investments rather than seek to undermine the endowments themselves. The hope would be that the endowment funds would be directed toward scholarships and research instead of risky investments in the market.
3. The GOP Tax Bill’s Disconcerting Raid on University Endowments
From National Review
By George Will
Will strongly opposes the GOP’s tax proposal on the grounds that it is yet another extension of government power into the private sphere. He compares university endowments to operating foundations in that they direct their funds toward charitable activities rather than toward granting outside organizations. He believes that a Republican tax on a similar institution—the university endowment—would be arbitrary and stands to enfeeble another facet of civil society. He concludes by writing, “This raid against little platoons of independent excellence would be unsurprising were it proposed by progressives, who are ever eager to extend government’s reach and to break private institutions to the state’s saddle. Coming from Republicans, it is acutely discouraging.”
4. Swelling College Endowments Tempt Lawmakers Looking for Tax Dollars
From New York Times
By Anemona Hartocollis
Hartocollis discusses the debate over the Republican’s recent plan to tax large university endowments. The plan originally included a 1.4 percent tax on the investment income of private colleges and universities with at least 500 students and assets of more than $100,000 per student. This new tax would result in $3 billion additional revenue from 2018- 2027. Opponents to the plan argue that the tax could dampen university donations and threaten to reduce operating budgets. Moreover, opponents tend to view the plan as an excuse to raise tax revenue in light of corporate tax reductions. Supporters, on the other hand, argue that the plan may help to curb bloated administrations and control escalating tuition costs.
5. Yes, it’s time to tax the universities
From NY Post
By F. H. Buckley
Buckley argues in favor of taxing university endowments. He questions the legitimacy of large universities based on their oversized administrations, huge endowments relative to the student body, and senseless course offerings. He argues that rather than an education, students are being trained to in the “membership in the New Class of lawyers, government aides and staffers for multi-national corporations and NGOs.” He underscores that the new tax would be minimal (1.4 percent) and is less than what private foundations pay. Moreover, he presses the issue of taxation since he considers the endowment a business investment.
For more on taxes and philanthropy, check out Law & Philanthropy: Conversations on Philanthropy, Vol. IX from the Philanthropic Enterprise.