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October 12, 2011

The Next Corporate Tax Target: The University?

Here is a story in The Fiscal Times that may sound a distant warning to wealthy universities.  It raises a question that might sound repeatedly in the coming years: Since some private universities are so wealthy, why don't they pay taxes?

As the article notes, last year was a good year for endowments.  Harvard's climbed $4.4 billion (!) last year to reach a total of $35 billion.  Stanford's went up 22 percent, Yale's 21.9 percent, Penn's 19 percent, and MIT's 17.9 percent.  Because they are non-profit institutions, they aren't taxed on those increases, leading some to wonder, in these tough times and in light of Federal debt, why?

One faculty member cites what is becoming a familiar public refrain on the left about the unseemliness of the wealthy: 

"At some point, a nonprofit gets so rich that it seems kind of obscene to let wealthy universities get out of paying takes.  Especially with this new Super Committee, I think the federal government is going to start looking a lot harder at the revenue running out the door every year--especially to institutions like Harvard that don't exactly need it."
 
Whether or not one agrees with "need" as a principle of taxation, when people hear about the dollar figures of these institutions, they wonder about why the seem to get special breaks.  For instance:
  • universities pay no property taxes
  • donations to them are tax deductible, and universities may use those funds pretty much any way they please (unless specially restricted by the donor)
  • salaries for university administrators keep climbing, as do tuition costs
  • they don't have to meet the standard private endowment rule of paying out five percent of their endowment assets each year
  • 82 percent of universities make foreign investments
A change in those exemptions would add up to huge windfalls for state and Federal governments.  According to one report, if Boston College, Boston U, Brandeis, Harvard, MIT, and Dartmouth had to pay property taxes, their annual bill would amount to $235 million.
 
For how long will state and Federal legislators, desperate for revenue, let those mounting endowments alone?

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