Tax bill a dis­con­cert­ing raid on univer­sity en­dow­ments

Austin American-Statesman Sunday - - BALANCED VIEWS - Ge­orge F. Will

which are gen­er­ally run by small co­ter­ies, pay a “su­per­vi­sory tax” on in­vest­ment in­come to de­fray the cost of IRS over­sight to guar­an­tee that their re­sources are used for char­i­ta­ble pur­poses. In 1984, how­ever, Congress cre­ated a new en­tity, an “oper­at­ing foun­da­tion.” Such or­ga­ni­za­tions — e.g., of­ten mu­se­ums or li­braries — are ex­empt from the tax on in­vest­ment earn­ings be­cause they ap­ply their as­sets di­rectly to their char­i­ta­ble ac­tiv­i­ties rather than mak­ing grants to other or­ga­ni­za­tions, as do foun­da­tions that there­fore must pay the su­per­vi­sory tax.

Most univer­sity en­dow­ments are com­pounds of thou­sands of in­di­vid­ual funds that of­ten are re­stricted to par­tic­u­lar uses, all of which fur­ther the in­sti­tu­tions’ ed­u­ca­tional pur­poses. Hence these en­dow­ments are akin to the un­taxed “oper­at­ing foun­da­tions.” Yet the Repub­li­cans would ar­bi­trar­ily make univer­sity en­dow­ments uniquely sub­ject to a tax not ap­plied to sim­i­lar en­ti­ties.

Are Repub­li­cans aware, for ex­am­ple, that Princeton’s en­dow­ment earn­ings fund more than half its an­nual bud­get, and will sup­port ex­pan­sion of the stu­dent body? It also en­ables “need-blind” ad­mis­sions: More than 60 per­cent of un­der­grad­u­ates re­ceive fi­nan­cial as­sis­tance; those from fam­i­lies with in­comes be­low $65,000 pay no tu­ition, room or board; those from fam­i­lies with in­comes be­low $160,000 pay no tu­ition. No loans are re­quired. Ph.D. can­di­dates re­ceive tu­ition and a stipend for liv­ing costs.

The world’s great re­search uni­ver­si­ties foster up­ward mo­bil­ity that ful­fills demo­cratic as­pi­ra­tions and com­bats stag­na­tion of elites. It is short­sighted to jeop­ar­dize this.

Great uni­ver­si­ties are great be­cause phil­an­thropic gen­er­a­tions have borne the cost of sus­tain­ing pri­vate in­sti­tu­tions that seed the na­tion with ex­cel­lence.

Its ap­petite whet­ted by 1.4 per­cent, the po­lit­i­cal class will not stop there. Once the un­der­stand­ing that un­til now has pro­tected en­dow­ments is shred­ded, there will be no lim­it­ing prin­ci­ple to con­strain gov­ern­ments — those of the states, too — in their un­sleep­ing search for rev­enues to ex­pand their power.

The pub­lic sec­tor’s sprawl threat­ens to en­fee­ble the pri­vate in­sti­tu­tions of civil so­ci­ety that me­di­ate be­tween the in­di­vid­ual and the state and that leaven so­ci­ety with en­ergy and cre­ativ­ity that gov­ern­ment can­not sup­ply.

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.

Dis­clo­sure: Will is a for­mer Princeton trustee.

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