Harvard, which has a $36.5 billion endowment (2015), is the biggest beneficiary of any university of the U.S. tax code.
The 281 public universities studied by the Nexus Research and Policy Center received $7,000 a year per student in state support on average over the past three years. But that sum pales in comparison to the indirect support, in the form of tax breaks for endowments, enjoyed by the larger private universities.
Gifts to university endowments are exempt from taxation as are earnings of the endowments themselves, wrote Mark Schneider and Jorge Klor de Alva in a Washington Post op-ed last week. Over the past three years 52 private universities with endowments of over $1 billion have received an average annual taxpayer subsidy per student amounting to more than $26,000 — almost four times as much.
Not only do the wealthiest private schools (and a handful of richly endowed public institutions such as the University of Virginia) receive the biggest tax boosts, the riches are far more likely to be bestowed upon the offspring of America’s highest-income families.
Write Schneider and de Lava:
Students from families in the top 1 percent of the income distribution are 77 times more likely to attend the most elite universities (the eight Ivy League colleges, plus four others) than are students from families in the bottom 20 percent of the income distribution. …
One consequence of that disproportionate flow of taxpayer dollars to the elite private universities is that last year, according to federal statistics, the billion-dollar-plus campuses were able to spend over $41,000 on instructional services for each student. In contrast, regional campuses spent only about a quarter as much ($10,700) on instruction per student.
Bacon’s bottom line: Liberals and progressives focus on the U.S. income tax code as a tool for income redistribution and economic leveling. The problem is that raising income tax rates engenders tax-avoidance behavior, creates disincentives to work, and does not result in the hoped-for gusher of tax revenue. Perhaps egalitarians should redirect their attention to the portion of the U.S. tax code that favors university foundations instead.
Because of the tight correlation between income and SAT scores, the nation’s top universities cater largely to the “one percent.” Graduates of elite institutions enjoy not only the advantage of higher family incomes than other Americans, better high school educations, and the opportunity to forge relationships with the plutocrats of the future, they attend institutions where massive tax privileges lavish them with the richest of academic and campus experiences.
Consider this: Harvard’s $36 billion endowment (2015 numbers) has the capacity to generate $2.2 billion a year in income (assuming a modest 6% return on investment). Assuming the top corporate tax rate of 35%, that amounts to a tax subsidy of about $750 million a year. That is comparable to the $844 million in state support Virginia provides to UVa, Virginia Tech, Virginia Commonwealth University, George Mason University and Old Dominion University combined. And that doesn’t include the tax breaks — a double-dipper benefit — for the alumni and philanthropists who donate to Harvard!
As Malcom Gladwell observes in his widely downloaded “My Little Hundred Million” podcast, a handful of elite universities receive the lion’s share of donations and benefactions. Gladwell’s focus is on the philanthropists, as opposed to the tax breaks they enjoy, but the point is much the same. An extra $100 million donated to Harvard or Stanford will create a tiny incremental gain to society. But the same gift donated to a middling institution can have a tremendous impact.
Why does U.S. tax policy encourage the continued showering of benefits upon the cognitive/income 1%, while the institutions catering to the rest of America are left scrounging for crumbs? If liberals and progressives — and conservatives, too, because we don’t like to live in an oligarchy any more than anyone else — want to even the playing field, I would suggest that it makes far more sense to target tax breaks for rich endowments.
