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December 11, 2012

Dishonesty in the Pay for College Presidents

By Richard Vedder

Major university presidents, supported by their governing boards that typically they have wrapped around their fingers, behave often like Marie Antoinette ("Let them eat cake") or Leona Helmsley ("only little people pay taxes.") The most recent outrage is the revelation by Jack Stripling of the Chronicle of Higher Education that 25 of the 50 highest paid university presidents have their income taxes paid by the school. These presidents, who typically are left-of-center rent-seekers, constantly beg the federal government for more money. Most of them no doubt fervently support President Obama's campaign to tax successful people more, even though they are amongst the few high-income Americans that simply do not pay taxes -no "alternative minimum tax" for them.

This is objectionable at multiple levels. First, of course, is the issue of equity. Is it right for 99.999 percent of Americans to face tax obligations, but not a privileged academic aristocracy -the top .001 percent? Within higher education, why should the janitor cleaning the president's office pay literally infinitely more in tax than his boss? It puts the Warren Buffet and his secretary analogy to shame. 

Second, this is still another example of universities avoiding transparency ---no, let's use a better word- -honesty. It is dishonest to tell the world "we pay our university president $500,000 a year" when, in fact, that person is getting a hidden fringe benefit so exotically outrageous that it is virtually unknown to the American public. American corporations, facing withering criticism from stockholders, abandoned this practice years ago. But universities have no stockholders, and trustees ordered to jump off the top of the school's 30 foot climbing wall by the president typically will do so. There is little constraint on college presidents from their ostensible "bosses."

Third, universities are given tax exemptions because they are viewed as benevolent institutions serving the public good. They are, quite transparently, given special privileges. For them to say, "that is not enough" shows how out of step they are from the realities of the world in which they operate.  Dozens of university presidents make more than one million dollar salaries. They do as well as high level corporate executives of similar sized business operations. Not only should we question why the chief executives of universities be given special privileges (no income taxes), why should the institutions they govern be given them as well? If the schools abuse their special status by giving millions away in benefits, why should people be allowed to make tax-lowering gifts to the institutions?

Fourth, of course, is the university hypocrisy and the aristocratic contempt towards the common people who support the presidential lifestyle through taxes and private contributions. Liberal presidents demand more public funds and support higher taxes to pay for that largess -but taxes only on others -the little people. They think they are different, superior, beyond the rules governing ordinary human behavior.

Then there are the other things -the club memberships, the cars and drivers, the large presidential home, now increasingly located off-campus so the president will not be bothered by hearing those annoying students. At my midsized state university, our president almost never drives anywhere 200 miles or more away -that is what private aircraft are for. How many private businesses with $500 million revenue have private corporate aircraft? Some, perhaps, but far from all.

Next to "grossing up" (paying presidential income taxes), the worst practice is deferred compensation, designed to assure that the Anointed One, the university president, is "incentivized" to stay around. Agreements often include "retention bonuses." When I started teaching, the typical university president contract was for one year -he or she was employed at will. Now, presidents are given five, eight, even ten year contracts. What if the president screws up? Like football coaches, there are million dollar buyouts. And, at retirement, the president is given millions in good-bye pay -perhaps a professor job paying well but requiring little work, perhaps an actual au revoir gift.

I think the federal government has screwed up higher education -badly. But a good case can be made for it to put an end to outrageous compensation packages by restricting federal tax exemptions to schools who turn over the benefits of such privileges to a few greedy administrators. I don't believe I am saying this, but where is the U.S. Senate when we need it?

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Richard Vedder directs the Center for College Affordability and Productivity, teaches economics at Ohio University, and is an Adjunct Scholar at the American Enterprise Institute.



Comments (4)

Warren Bonesteel:

Keep it simple.

End non-profit, tax free status for everyone and everything.

No special considerations under the law for anyone.

That way...everyone's equal...and everyone pays taxes...and everyone has 'skin in the game.'

Tom RKBA:

Absolutely not. Keep government out of private contracts. They have no business telling us what we can be paid.

teapartydoc:

Nationalize all foundations and university endowments and make all curricula free on-line.

Matthew Borcherding:

Don't forget that many college presidents are given free housing at the college's "President's House." Which is usually a well-appointed and staffed mansion. Yes, the house usually gets used for a lot of college functions, but similar level private executives do not get free mansions with their benefits.

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