OPINION:
Republicans are searching for ways to “pay for” their tax cuts. Democrats want the rich to pay more taxes. Here is a solution that should make everyone happy.
House Ways and Means Committee Chairman Jason Smith, Missouri Republican, suggests taxing the $840 billion college endowments. These endowments will soon eclipse $1 trillion, more than the entire gross domestic product of many countries.
It’s high time that bloated and entitled universities pay “their fair share” for the government services they use.
Why not? Their professors forever lecture us about tax “fairness,” but the schools where they teach a few hours a week for their munificent salaries are the very embodiment of mostly White “privilege.” They are the wealthiest institutions in the world and go untaxed.
The cost of this leakage to the tax base will grow exponentially as this generation of billionaires — Jeff Bezos, Bill Gates, Mark Zuckerberg and others — pass on trillions of dollars. Much of it will enter the vaults of the universities. These are capital gains that have never been taxed and never will be.
Why is this a problem?
A good and just tax system has a broad base so everyone pays but a low rate so it doesn’t discourage work, saving and investment. This means no loopholes and carve-outs that allow the rich to keep their fortunes out of the tax man’s reach.
What makes the college endowment scam even worse is that the preponderance of the dollars doesn’t go to small colleges or community colleges but to the Harvards, Yales, Stanfords and Princetons, which are already layered with gold and serve society’s elite.
It makes no sense that millionaires and billionaires can make seven-, eight- and even nine-figure donations to their alma maters and these funds escape the taxes that all the rest of us pay.
It’s even worse than that. Colleges pay hardly any income taxes and generally avoid paying property taxes, even though their vast tracts of valuable land are in or near struggling inner cities.
The universities boast to their donor bases: Contribute to the U.S., and you can avoid paying the estate tax and capital gains tax on your billions. Why aren’t liberals offended by this tax escape hatch?
I have no problem with deductions for legitimate charities such as soup kitchens, homeless shelters and orphanages, but do Northwestern and Stanford need tax breaks? Has anyone been to their glitzy campuses?
At least a dozen schools are bulging with $10 billion endowments and scores more with more than $1 billion each. We should call these schools Loophole U.
What public purpose is advanced by these storehouses of wealth?
Harvard’s near $50 billion endowment is so large that the school could charge free tuition to every student from now until kingdom come and still not run out of money. Yet Harvard charges $100,000 yearly for tuition, room and board.
This is the real sin of this unworthy tax loophole. Even with these giant endowments, college tuition has risen at two to three times the inflation rate. The argument that tax-free donations make colleges more affordable has proved patently false. The bigger the endowment, the more the schools charge students, their parents and taxpayers.
One of the best ways to help inner cities would be to require all universities (and hospitals) to pay property taxes. This would broaden the tax base in poor cities where nonprofits have grabbed the most valuable real estate. Instead of chasing people out of cities such as Boston, Chicago, Philadelphia and New York with exorbitant taxes, dinging the big U down the street would allow cities to cut their taxes for everyone else.
Richard Vedder, an economist at Ohio University, has noted that “one of the most regressive policies in the tax code is the subsidies to the billion-dollar universities. This only makes the rich richer.”
In a famous scene in the movie “Animal House,” Dean Wormer lectures to one of the students facing expulsion: “Fat, drunk and stupid is no way to go through life, son.”
Ironically, that could describe more than 100 overly endowed universities, which are more like investment houses with classrooms and students roaming around. Colleges must pay their fair share, and the revenue should be used to help pay for the Trump tax cuts, which benefit everyone. That sounds fair to me.
• Stephen Moore is a senior fellow at The Heritage Foundation and a co-founder of Unleash Prosperity.
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