Tax­ing en­dow­ments hurts uni­ver­si­ties

The Columbus Dispatch - - Letters To The Editor -

The Repub­li­can tax bills wind­ing their way through Congress con­tain sev­eral pro­vi­sions that would im­pair Amer­i­can higher ed­u­ca­tion — from tax­ing grad­u­ate-stu­dent tu­ition waivers and tu­ition ben­e­fits for the chil­dren of em­ploy­ees to re­mov­ing de­duc­tions for stu­dent-loan in­ter­est — but in­suf­fi­cient at­ten­tion has been fo­cused on the plan to tax univer­sity en­dow­ments.

This tax on en­dow­ment rev­enue will dis­rupt univer­sity ed­u­ca­tion and re­search for decades and stems from a mis­guided un­der­stand­ing of how univer­sity en­dow­ments work.

This tax pro­vi­sion is in both the al­ready-passed House GOP bill and the Se­nate GOP bill cur­rently un­der con­sid­er­a­tion. With dif­fer­ent thresh­olds, each would levy a 1.4 per­cent tax on the en­dow­ment in­come of scores or hun­dreds of uni­ver­si­ties. This threat of tax­ing en­dow­ments goes back sev­eral years, pro­posed to push uni­ver­si­ties to do more to lower tu­ition.

This is un­for­tu­nate. There are many prob­lems with re­source al­lo­ca­tion in Amer­i­can higher ed­u­ca­tion, with the chal­lenges of af­ford­abil­ity and ac­cess at the very top, but a sim­ple tax on en­dow­ments does noth­ing to in­cen­tivize ad­dress­ing them, and more­over, makes ex­ist­ing ef­forts even harder.

The prob­lem is there is no such thing as a “univer­sity en­dow­ment.” In­stead, en­dowed in­sti­tu­tions each hold thou­sands of sep­a­rate funds — Case West­ern Re­serve, where I teach, has about 2,700 — each ded­i­cated to spe­cific pur­poses by the le­gal terms of donors. A fund gifted a cen­tury ago to pur­chase his­tory books for the li­brary or to sup­port the salary of a pro­fes­sor­ship in pe­di­atrics can­not be re­pur­posed for stu­dent aid with­out a rene­go­ti­a­tion of the gift’s terms — of­ten im­pos­si­ble when donors are no longer alive — or, un­der ex­tra­or­di­nary cir­cum­stances, con­sent from a judge. Uni­ver­si­ties, even the best en­dowed, can­not sim­ply re­pur­pose their col­lec­tive en­dow­ment in­come to re­duce tu­ition.

In­stead, tax­ing en­dow­ment in­come means less money for each fund’s pur­poses. For a small li­brary fund for phi­los­o­phy books, this means for­go­ing a vol­ume. But the $20 mil­lion for stu­dent aid loses hun­dreds of thou­sands of dol­lars, forc­ing the sup­port of fewer stu­dents, less sup­port per stu­dent, or both.

If Congress wants to en­cour­age pri­vate in­sti­tu­tions to use en­dow­ments to open doors to col­lege, it could pro­vide ad­di­tional in­cen­tives for donors to make con­tri­bu­tions ded­i­cated specif­i­cally to­ward schol­ar­ships and tu­ition re­mis­sion. It could in­cen­tivize prospec­tive donors away from the al­ready-wealthy in­sti­tu­tions and to­ward those with smaller (or nonex­is­tent) en­dow­ments.

Still, no stu­dent’s ac­cess to col­lege should de­pend on per­sonal wealth or pri­vate phi­lan­thropy. Only a small pro­por­tion of Amer­i­can col­lege stu­dents at­tend elite in­sti­tu­tions — ones whose re­sources make them best able to pro­vide schol­ar­ships. In­stead, most at­tend a range of pub­lic re­search, re­gional, and com­mu­nity col­lege in­sti­tu­tions. Since the early 1980s, state fund­ing of higher ed­u­ca­tion has stalled or dropped as stu­dent bod­ies have grown, forc­ing pub­lic schools to raise tu­ition to com­pen­sate. Ei­ther vot­ers must de­mand their states bet­ter fund pub­lic in­sti­tu­tions or the fed­eral govern­ment must do so it­self.

Amer­i­cans are right to be frus­trated with both ever-ris­ing tu­ition and our un­equal tax code. Tax­ing en­dow­ments makes both of these prob­lems worse. As­so­ci­ate pro­fes­sor Case West­ern Re­serve Univer­sity Cleve­land Colum­bus

Steven Rosen­berg

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