2008 June 01 Sunday
Massachusetts Legislators Threaten To Tax College Endowments
Harvard especially has grown conspicuously wealthy and can accumulate massive amounts of money tax free.
"Two things are on a collision course: The public anxiety about the cost and affordability of college is very, very high, while [wealthy institutions] ... are sitting on what appears to be huge pots of money," says Patrick Callan, president of the National Center for Public Policy and Higher Education in San Jose, Calif.
The Massachusetts proposal would impose a 2.5 percent tax on the portion of endowments above $1 billion.
"There is an exorbitant amount of wealth that has been generated with these endowments, especially in the case of Harvard and MIT," about $35 billion and $10 billion, respectively, says state Rep. Paul Kujawski (D), who proposed the tax plan in part because the state is facing a $1.3 billion budget gap. "When is a nonprofit considered not a nonprofit?" he asks.
A few points: Huge amounts of money flow into Harvard from donors just to make their endowment even larger. Plus, Harvard is able to hire great fund managers who get high returns on investments for the endowment. Those fund managers might get a lot of useful tips from well-placed Harvard alumni. How else to account for the stellar returns on the Harvard endowment?
Harvard is just accumulating the money. If you want to donate to making education better Harvard is the wrong choice for a donation. They do not need their endowment for operations. It is just a huge status symbol.
If you want to fund research then fund individual labs. If you want to fund education then donate money to create high res video college course lectures downloadable on the web. You'll reach more people and do it for very low cost. Then fund some of the poorer small colleges to do web-based testing of students and periodic in-person testing to then grant college credit to whoever wants to try learning over the web.
Harvard provides a place for a small number of very bright people to go to school. The main benefit of the place is a combination of the connections formed with ambitious people and the ability to signal to everyone else that you were smart enough to get into Harvard. Any potential superiority of actual content of the courses is far less important assuming said superiority of courses even exists there.
Update: The Ivies are internationalizing in a big way. When will Americans become a minority at Columbia University?
Harvardís 3,546 international students ranked behind Columbia University (5,278) and the University of Pennsylvania (3,712) in the Ivy League, but was almost double the number of foreign students at Yale University.
I can't say I'm all that sympathetic. Look at all of the leftist, liberal, PC nonsense that comes out of these schools that has been destroying the United States. We'll see how much they like having to pay for it. I imagine they'll like it as much as the rest of us do. I'm actually surprised this hasn't happened sooner, but better late then never.
The Harvard endowment is around $35 billion and increased about $6 billion, or about 20%, in the last year, which is typical for major college endowments (>$1 billion). Recently Harvard has begun a campaign to alleviate the financial strain of sending your precious offspring to their hallowed halls. Families with incomes less than $60,000 will "not have to contribute" to their darlings' tuition, while those with incomes up to $180,000 will be asked to contribute around 10%. Not too bad, until you think about all the money that Harvard really has. Let's put together a typical yearly budget for promising young Megan or Wilson as their parents contemplate sending their kids to Harvard:
Tuition/fees - $35,000
Nice apartment in Cambridge - $24,000 (no crummy dorm rooms for our kids)
Lexus lease plus parking and costs - $10,000 (we don't expect our future leaders to ride the subway to class)
Food, lattes, clothes, some Red Sox tickets, misc. - $26,000 (we have to economize somewhere)
Spring break ski vacation to Switzerland - $5,000
Total cost of attending Harvard and living like minor nobility - $100,000 per year
Number of Harvard undergraduates - 6715
Total cost of supplying this rather nice education package to all Harvard undergraduates - $671,500,000.
Increase in the Harvard endowment last year - $6,000,000,000.
Sooooo, for slightly more than 11% of the INCREASE in the endowment last year (not the total), Harvard could let every single one of its undergraduate students live like a little prince or princess with ZERO financial impact on their families. No wonder that the Massachusetts legislature is casting hungry eyes on that endowment.
While the top universities have a lot more money to give scholarships to all the accepted students who need it, according to recent news, many financial institutions are actually beginning to reject the student loan applications from low ranking universities. In other words, the students who are enrolled in colleges that do not have a good reputation (including community colleges), may find it impossible to get a loan to study. This is because the financial institutions feel that the less qualified students probably will not be able to pay back the loans. (The educational equivalent of sub-prime loans, which are now being rejected.) This is at variance with the previous situation just a decade ago, where the more needy people were getting loans.
This seems to be the reason Massachusetts is attempting such a method for redistribution of wealth. In some countries, including France, there is an official wealth tax, where the government actually takes a percentage of the wealth, in addition to annual income.
In any case, as the separation of wealth increases, it is very likely that all governments who are afraid of being overthrown, will resort to redistributing both income and wealth, by means of confiscatory taxes that include even property.
>>Nice apartment in Cambridge - $24,000 (no crummy dorm rooms for our kids)
That's not how Harvard works. There is no living off campus. Freshman year is spent in one of the dorms in Harvard Yard, and the remaining three years are spent in one of the "houses."