Should large school endowments be taxed?

Researcher: Distribution of per-student subsidies 'is the most troublesome'

A recent study from the Nexus Research and Policy Center questions whether elite colleges and universities get too many tax benefits and suggests taxing endowments valued at more than $500 million.

For the report, researchers analyzed direct and indirect tax benefits and public appropriations received by the 10 richest colleges and universities in 10 different states. Then, they compared those figures with benefits received by lower-endowed private colleges, the public flagship, a public regional college, and a community college in each state. In all, researchers examined the tax subsidies of 60 institutions.

The top 10 richest schools control about one-fifth—or $180 billion—of all higher ed holdings. However, none of the endowments or land holdings—nor the gains on them—are taxed. The authors concluded that "invisible" tax benefits go to elite, private institutions at a disproportionate rate.

These benefits, according to the report, account for $41,000 per-study subsidies a year on average, three times higher than what public universities get in direct state support per student.

Per-student subsidies

Low-income students qualifying for Pell grants make up less than 15% of the student bodies at Princeton University, Yale University, and Stanford University.

In California, for example, Stanford's $21.4 billion endowment and $8 billion land value amounts to a taxpayer subsidy of about $63,000 per student, compared with direct appropriations of just $10,000 per student at the University of California at Berkley and only $4,000 at California State University at Fullerton.

Endowment tax could re-balance funding

The report proposes a 0.5% to 2% excise tax on endowments greater than $500 million as a possible solution, allowing the tax to be reduced by amounts the elite institutions put toward financial aid. Individual gifts would not be taxed.

Some higher education voices praise the suggestions. "These top institutions need to do their part, too, rather than just claim in public statements to want to enroll a greater economic diversity of academically qualified students," writes Arizona State University professor Jeffrey Selingo in Washington Post's "Grade Point" blog.

However, others say such a change will cause public service activities to suffer.

"Taxing them is not the solution to this problem," Barry Toiv, spokesperson for the Association of American Universities, said in a statement. Instead, he argues, state governments must reinvest in higher education and the federal government must provide additional financial aid funds ("The Ticker," The Chronicle of Higher Education, 4/6; Selingo, "Grade Point," Washington Post, 4/6).

The takeaway: Authors of a new study from Nexus Research and Policy Center argue for an excise tax on university and college endowments of more than $500 million.

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