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Is It Time to Tax Harvard’s Endowment?

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Re: Is It Time to Tax Harvard’s Endowment?

#31

Post by scott_s »

mhb wrote: post #5

It is disturbing that the author so lightly morphs a tax exemption into a taxpayer subsidy. As if the natural state of things is for the government to tax everything and whatever it doesn't is being subsidized.

That's how most economists view a tax exemption. An exemption means that ordinarily, this entity would be taxed, but because it is deemed to be special in some way, they get an exemption. From the perspective of an economist, that's money the government is giving up, which is no different than paying that money out.

Re: Is It Time to Tax Harvard’s Endowment?

#32

Post by smeyer »

hackuser wrote: post #16
rubidium wrote: post #12

Earlier quoted context omitted.

Because it's an educational institution. That's the whole point! Harvard gets to have people with no money get degrees from their school for free because of this. It's a wonderful thing for society that they have such a big endowment. Why anyone would get so money hungry as to attack them is beyond me.

> Harvard gets to have people with no money get degrees from their school for free because of this. As far as I know, enrollment at Harvard and most other elite institutions skews heavily toward wealthy people.

Yes, Harvard disproportionately has many wealthy people compared to the population at large, but it also provides free educations to large numbers of people. Last I checked, the cutoff was around 60k (meaning, if your family makes less than 60k, Harvard will foot the entire bill). The challenge of overcoming this skew towards wealthy students has more to do with education in general and recruitment than the price tag when it comes to some of the wealthiest schools.

Re: Is It Time to Tax Harvard’s Endowment?

#33

Post by chimeracoder »

jhugg wrote: post #25
kailuowang wrote: post #17

When public education needs more money, taxing private education to support them doesn't help education in the society as a whole. High education should not be taxed, period. It's investment towards more tax income in 3-4 years. If you need to tax something to support some providers of education, it's not other providers of eduction.

One issue here is using tax policy to incentivize investment in higher education by penalizing institutions for NOT spending huge endowment windfalls on higher ed. You don’t tax Harvard the school like you tax a corporation. You tax Harvard the fund, if and only if it’s not existing primarily to support Harvard the school. Sitting on money doesn’t help the economy much.

> Sitting on money doesn’t help the economy much.

This is a really dangerous misconception. "Sitting" on money isn't really possible, by definition. All money is being put to work at some point, it's just a question of where[0].

Broadly speaking, when people store money in banks, that money gets loaned out to people. If you have a mortgage, that's coming from money that someone was sitting on. If you are working at a venture-backed company, your paycheck is paid (through a lot of middlemen) from money that someone was sitting on.

It's impossible for money to be 'sat on' without helping the economy. In fact, our economy depends on people saving money this way.

[0] Again, this is true by definition; savings are investments. Saying that saving money isn't helpful is equivalent to saying that investing money isn't helpful.

Re: Is It Time to Tax Harvard’s Endowment?

#34

Post by dalke »

nemothekid wrote: post #7
dalke wrote: post #4

Earlier quoted context omitted.

What would "meat" look like to you? Suppose you were to start "a hedge fund with a university attached to it", in order to use the university's non-profit status to minimize paying taxes. What would that look like? Would you set up need blind admission, in order to provide better cover to justify the hedge fund? The article points out that the non-profit status means that "Princeton received $105,000 in tax benefits…

I'm not sure what your point is. Let's say the above were true, a non profit organization uses its tax subsidies to let students attend for free - how is that not a good thing? And how is that not something that should be encouraged?

My point was that the article provided some substance, and gave numbers which explain why a needs blind admission policy does not, on its own, justify the existing tax policy.

The question you asked was addressed in the article, in statements like "In a world where the government only provides limited resources for higher education, we’re almost certainly shoveling an outsized share of them to schools that don’t need the financial help." and "we seem to have stumbled into a system that disproportionately subsidizes the educations of a tiny few."

The second page tries to address what a more equitable distribution might be. For example, "Republican Sen. Chuck Grassley caused a minor uproar in higher education circles by proposing that colleges should be forced to spend 5 percent of their endowments every year, the same way private charitable foundations are."

However, the author is clear that there is no simple answer, and leaves the topic hanging with "I think we’d all like to spend a little less money sending other people’s kids to Harvard."

Personally, I think it should have ended with "we'd all like to spend a little less money sending people to Harvard and more money sending more people to college."

As to your last question, there is a balance of factors that make it difficult to answer. If the monetary policy is such that one person gets to attend Harvard for free or 4 people get to go to a public college for free ... which should we choose, and why? (Based on the numbers in the article, and the cost of tuition for different colleges, the actual number is probably between 1:2 and 1:6.)

Re: Is It Time to Tax Harvard’s Endowment?

#35

Post by lhc- »

chrisBob wrote: post #23
bradleyjg wrote: post #8

Earlier quoted context omitted.

Harvard waives fees altogether for families making less than $65,000. More than 60% of US households have income less than that+, yet only 20% of Harvard's undergraduate class pays no fees. From this we reasonably say that Harvard is mostly a school for rich kids, despite its generosity to those non-rich kids it lets in. In this way it is similar to elite private high schools in NYC or boarding schools in New England…

>yet only 20% of Harvard's undergraduate class pays no fees Unfortunately I think this is mostly an issue of exposure. It is probably harder for most Andover Academy students to get into an Ivy than it would be for a similar student from a rural school, but most rural students don't know that. If the guidance counselors at high schools educated their students about their options many more of them would likely apply t…

Why would it be harder for a student from an elite boarding school to get into an Ivy than someone from a rural school? I would say the opposite, in no small part based on the evidence that at least supports a strong correlation.

Re: Is It Time to Tax Harvard’s Endowment?

#36

Post by jobu »

rubidium wrote: post #11
mhb wrote: post #5

It is disturbing that the author so lightly morphs a tax exemption into a taxpayer subsidy. As if the natural state of things is for the government to tax everything and whatever it doesn't is being subsidized.

No kidding. "And since bestowing tax exemptions is the same as spending cash from the government’s perspective". I physically shuddered as I read that. The authors entire argument falls apart right there.

How is that wrong? The government decided not to tax these college endowments because they were considered a public good. That decision had a direct effect on the government's budget - a cost.

Re: Is It Time to Tax Harvard’s Endowment?

#37

Post by Animats »

Quanticles wrote: post #29

1. If you're going to tax universities, then you need to tax churches too. Good luck. 2. If you're going to tax non-profits, then why have non-profits? 3. Do we really want to penalize fiscally responsible organizations when even governments are going bankrupt? What values are we trying to support here?

"If you're going to tax universities, then you need to tax churches too. Good luck."

Right. There are some very wealthy churches. In the United States alone, the Catholic Church has an operating budget of $170 billion. That's bigger than Apple.

Re: Is It Time to Tax Harvard’s Endowment?

#38

Post by the_hangman »

bradleyjg wrote: post #8
chrisBob wrote: post #2

People give these elite colleges and universities a hard time, but I think it is mostly sensational stories with no meat. Do you know how many US schools are need blind and meet full need for all students? 6. [1] I also have no clue where the story about these schools being for rich kids came from. When my wife went to Princeton a few years back it was one of the cheapest options for her! Schools all base need on the…

Harvard waives fees altogether for families making less than $65,000. More than 60% of US households have income less than that+, yet only 20% of Harvard's undergraduate class pays no fees. From this we reasonably say that Harvard is mostly a school for rich kids, despite its generosity to those non-rich kids it lets in. In this way it is similar to elite private high schools in NYC or boarding schools in New England…

> Harvard waives fees altogether for families making less than $65,000. More than 60% of US households have income less than that+, yet only 20% of Harvard's undergraduate class pays no fees. From this we reasonably say that Harvard is mostly a school for rich kids, despite its generosity to those non-rich kids it lets in.

This argument is backwards. Harvard has a need-blind admission policy, which means that admissions decisions are judged solely on merits.

The reason that kids from the > 60% of households with incomes below that threshold don't go to Harvard isn't because of Harvard's admission policies, it's because the college preparatory system heavily favors families with higher wealth.

Re: Is It Time to Tax Harvard’s Endowment?

#39

Post by Retric »

chimeracoder wrote: post #33
jhugg wrote: post #25

Earlier quoted context omitted.

One issue here is using tax policy to incentivize investment in higher education by penalizing institutions for NOT spending huge endowment windfalls on higher ed. You don’t tax Harvard the school like you tax a corporation. You tax Harvard the fund, if and only if it’s not existing primarily to support Harvard the school. Sitting on money doesn’t help the economy much.

> Sitting on money doesn’t help the economy much. This is a really dangerous misconception. "Sitting" on money isn't really possible, by definition . All money is being put to work at some point, it's just a question of where[0]. Broadly speaking, when people store money in banks, that money gets loaned out to people. If you have a mortgage, that's coming from money that someone was sitting on. If you are working at…

Banks can only give loans on a portion of their holdings, the rest of the money really does just sit there doing nothing. Arguably, it's a hedge however the FED even manages reserve requirements in terms of monitory policy not as a hedge.

http://www.federalreserve.gov/monetarypolicy/reservereq.htm

Re: Is It Time to Tax Harvard’s Endowment?

#40

Post by Retric »

smeyer wrote: post #32
hackuser wrote: post #16

Earlier quoted context omitted.

> Harvard gets to have people with no money get degrees from their school for free because of this. As far as I know, enrollment at Harvard and most other elite institutions skews heavily toward wealthy people.

Yes, Harvard disproportionately has many wealthy people compared to the population at large, but it also provides free educations to large numbers of people. Last I checked, the cutoff was around 60k (meaning, if your family makes less than 60k, Harvard will foot the entire bill). The challenge of overcoming this skew towards wealthy students has more to do with education in general and recruitment than the price tag…

Harvard does this to maintain it's rankings not because there operating a charity. If the goal is to educate people with tax payer money giving lot's of it to a private group who then goes and spends a tiny fraction of that educating high achieving poor people is a ridiculously inefficient use of public funds.
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