Should we tax the endowments of wealthy universities?

This NYT story has some background detail:

The House Republican tax plan released on Thursday includes a 1.4 percent tax on the investment income of private colleges and universities with at least 500 students and assets of $100,000 or more per full-time student. It would not apply to public colleges.

The endowments are currently untaxed, as they are considered part of the nonprofit mission of the colleges. The new tax, if it passed, would bring in an estimated $3 billion from 2018 to 2027, one of many new revenue sources Congress is considering to pay for broad tax cuts.

Note that this would apply to about 140 schools, and also that private foundations already pay tax on their investment income.  Greg Mankiw writes:

If my rough calculations are correct, the tax would cost schools like Harvard between $1,000 and $2,000 per student every year.

I am opposed to this change, mostly because I don’t like to see the government deciding to go after a new source of wealth for its tax base.  The focal point of non-interference ceases to be focal, and excesses and politicization too often follow.  Slippery slope!

But if you are otherwise not so keen on this Brennan-Buchanan argument, what exactly are the grounds for opposing this?  It taxes the relatively wealthy, and it taxes income from wealth.  It taxes finance.  I haven’t heard anyone oppose the tax on the investment income of private foundations, other than diehard anti-tax types.  That tax has hardly vanquished the private foundation form.  On top of all that, university endowments seem to have long time horizons, and to play the g > r game pretty well.  As early as 1958, Paul Samuelson taught us we can transfer resources out of g > r games at no real cost.

So, you’ll hear a lot of caterwauling on this one, but the only good arguments against it are the libertarian ones.  Broadening the base isn’t always good.  Don’t be suckered by the “give up education for tax cuts for millionaires” non-rigorous rhetoric you will hear.  With or without those tax cuts, you still have to ask yourself whether this tax hike is a sensible way of paying off our huge and growing debt.

I wonder if there are people who think a corporate income tax falls mainly on capital, but that this levy would fall mainly on students.  Actually…I don’t wonder.


Suppose that some of these schools use their endowment to provide discounted tuition to students of modest means. Berea College is an obvious example of that, but there are other colleges eligible on this list that spend considerably less per student than public universities and who have students with lower incomes than the University of Virginia's, the UNC's and the Penn State's of the world. Taxing such schools, and I guarantee that there are a number of them in the 100k+ per student group (I work at one) is an argument other than a libertarian argument to not tax endowments, or perhaps to design the tax differently.

I think liberalarts you fell into the trap TC warned us not to fall into. What a corporation/university decides to do with capital that is not taxed is irrelevant to the issue. Think of it this way: if lowering the corporate tax would allow Pfizer to have more money for R&D to develop a cure for cancer in a pill, wouldn't that be worth it? Lots of stuff can be done with less tax. But that doesn't negate the Samuelson argument. Another argument I saw along the same lines is to tax the rich, since the elasticity of rich people working is such that most of them will *not* stop working or work less (despite what they and Ronald Reagan used to say), so it's 'free money' if you raise taxes on the rich. Similar argument.

if lowering the corporate tax would allow Pfizer to have more money for R&D to develop a cure for cancer in a pill, wouldn’t that be worth it?

Let me follow this. Say Pfizer makes $10B a year in profit and pays $2.5B in tax (25% no special deductions or tricks). The argument is if Pfizer was taxed $0, it could take that $2.5B in savings and fund R&D to develop the cancer cure pill......

But then why doesn't Pfizer just increase its R&D spend $2.5B this year, lower its income to $7.5B which lowers its tax to $1.875B (less profit means less tax). If $2.5B gets you a cancer cure, that is worth trillions. Even a modestly good treatment for a small group of cancer patients is worth billions. If $2.5B would cure cancer Pfizer and a hundred other players would spend it tomorrow regardless of tax law.

The only thing that makes sense here is Pfizer would invest that $2.5B in saved taxes in a way that is roughly equal to the growth of the overall economy...2-3% per year. So giving Pfizer a $2.5B tax cut would increase the economy maybe $0.075B per year assuming on the other side of the equation there is no drag on the economy from either borrowing $2.5B more per year in higher deficits or slashing spending $2.5B or some combination of both.

More intensive investment is unlikely to cure cancer sooner because we already invest so much we fund not just the exceptional researchers but the mediocre.

Pfizer will pay that money out or invest it in the corporate treasury -- either way it is likely to end up as capital in another business.

Lowering taxes on capital encourages more capital. This is how we beat the soviets--by the collapse of the Soviet Union we had five times the amount of capital per worker.

We didn't beat the Soviets, the Saudis did. It was just a by-product for them of taking back control of OPEC. That was costly. Now we keep them "beat" by fracking and keeping oil down below $60.

So then you would have no problem spending $3B a year helping people buy health insurance. If that health insurance finds its way into Pfizer's bank account via people filling scripts for Pfizer drugs that means more capital, right? Are you signing on?

Of course the question is not what Pfizer could do but what it would do.

We do not tax universities because we believe that they will make socially very productive use of the money. We think that is their purpose, in fact.

Pfizer's purpose is to make profits. If it can do so in very socially productive ways, great, but that's not its mission.

That’s not really how pharma companies operate. Pharma firms are SMEs in navigating PH1-PH4 clinical trials. That’s their raison d'être. Pushing through this process, having the requisite international connections, and having a massive Ivy League legal team on staff is their competitive advantage. And political connections.

They buy out small firms that actually develop/discover drugs.

Whether you think this is worth billions of dollars in market cap depends on your opinions of the amount of value added by the federal bureaucracy.

If higher ed is a signaling/monkeys climbing ladders scheme then it should be taxed. Heavily.

Much easier and more efficient to subsidize R&D / capital investment directly than indirectly through massive handouts to the 21st century monasteries.

Not taxing someone is not a massive handout or even a little one. It is the absence of a handout.

Leave the universities alone.

Tax everyone equally. Charities and even governments at all levels should share the tax burden. The burden would be less if everyone paid it equally. End the charitable deduction and all of the special rules for tax exempts.

Our richest universities are also the most exclusive universities, and they are not growing in ways that have anything to do with demand. It's not as if they are built around educating bright orphans. I'd expect them to do pretty much nothing if the taxes went up, or if their capital gains went completely untaxed.

That's why there is an easy way for schools to avoid this tax built into the tax plan. All they have to do is spend their endowment on their students, including giving tuition assistance to low income students, and they will owe no tax. I look at this tax similar to the medical loss ratios applied to insurance companies under the ACA, not as a tax but as a way of insuring the money is spent in a way that meets the original, tax advantaged, goal of the funds.

I knew the content of this post before I clicked.

"I oppose this, but here are all the reasons why the opponents are wrong."

Some opposition.

".... other than diehard anti-tax types. "

yes, of course ... once one concedes that government agents have an inherent sovereign right to tax whatever they choose -- the fundamental issue is settled and the rest is mere administrative detail.

Only the emotionally unstable diehard fringe & wacky libertarians would ever question basic state tax authority or its limits.

Exactly. It's a bad idea.

Tyler is apparently all for taxing the wealthy, as long as you leave the estate tax alone. Note that the $2-3 billion a year is about 10% of what the estate tax generates.

Where's the discussion of the egregious new tax on Ph.D. students?

Under this new tax law, the typical grad student making $20-$30k will be taxed as if they are making $70-$80k, more than tripling their effective tax rate.

Good. It is hard to see any downside to this at all. There are too many PhD students in the world. Thin the herd.

Not to mention a lot are foreign - mainly Asian - so this has no downside for the West at all.

So in your view it makes sense to divide the world into regions in order to distribute benefits or impose costs. Why stop there? Wouldn't it be even more sensible to concentrate the benefits on one's own neighborhood or family than a larger, anonymous "West"? But there's always been an enthusiasm for inheritance taxes among the non-wealthy. Ergo, there's some position between the greedy heads of Western families and the undeserving Asian foreign students that merits our consideration, regardless of other factors. That line of thinking is ridiculous.

I am sorry but you are saying it is wrong for the people of Podunk, Missouri to elect a government that collects their taxes for any local benefit at all? That their local spending ought to be as much to benefit the people of Mali as the electors?

An interesting take.

Are you implying the tuition waivers that grad students receive aren't actually worth $50k per year? If so, then aren't the tuition rates themselves the egregious part?

If they were actually charged to the student, they would be egregious. They are also an accounting fiction, since Ph.D. students by and large do not take classes. Rather, they teach them. Hence the $50k charge is routinely waived.

What the bill does is effectively have the federal government tax people unpaid teachers $20k per year. I know that sounds great to conservatives, but not so much from the taxpayer's side of things.

They are more than an accounting fiction. Schools bill grants (or sometimes, fellowship agencies) for this money. It earns them revenue. And they claim it provides value. I still remember my acceptance letter to MIT saying something like "Our stipend of $22k plus tuition benefits of $33k per year mean our offer of acceptance to you is worth $55k per year."

Schools could easily stop this problem by not just "waiving" tuition, but lowering the rates to zero.

The practice of tuition waivers will simply stop.

Sounds like a win for everyone.

I have heard that such a step would be illegal. The reason being that universities must charge the same gross tuition to all. I'm not a lawyer though.

At the risk of creating a New York Taxi medallion problem, we could limit interstate promises of admission to doctoral programs in the humanities, arts and non-quantitative social research disciplines to a global sum and require research university to bid for admissions permits in a multiple-price auction.

What policy goal is this meant to achieve?

I am opposed to this change, mostly because I don’t like to see the government deciding to go after a new source of wealth for its tax base.

Income is not the same thing as wealth. A tax on income is not a tax on wealth.

What would the state of physics be today if physicists couldn't distinguish between position and velocity, between a variable and the rate of change of that variable?

But income is a source of wealth. Where might Bob be today if he could distinguish the source of something from the thing itself?

"But income is a source of wealth." But?

This does not contradict Bob's statement. Bob seems to be able to distinguish the source of something from the thing itself. That was the point of Bob's statement.


“I am opposed to this change, mostly because I don’t like to see the government deciding to go after a new source of wealth for its tax base.“


“LAST week, a Twitter conversation broke out among a few economists concerning whether any serious economists opposed a carbon tax. No, concluded the tweeters, but Tyler Cowen begged to differ. Mr Cowen writes that he personally favours a carbon tax but can imagine a number of principled reasons other economists might not.”

I suppose it’s possible that Tyler sees the purpose of a carbon tax as climate mitigation rather than a “source of wealth,” but I doubt the politicians see it that way.

I was also going to bring up the Carbon Tax as a base-broadening tax that TC is in favor of.

The very simple argument is the same one for not taxing any church. It has nothing to do with the church or school providing a social service, yada yada. That is favoring someone because you like what they do.

This is about favoring them especially when you dislike it.

The power to tax is the power to destroy. Churches and seminaries, to some extent all higher education, is a place that should be outside the scope of federal government (and popular) control - especially when it is doing something unpopular.

This should be obvious and well-understood as a principle. That it isn't suggests something profoundly wrong in civics education.

But churches and universities and everyone else should pay taxes since they get benefits. They use the roads, the sewers the water supply, etc etc. If its not a benefit then nobody should pay the tax

If the argument is that taxing is the power to destroy then why should I pay taxes. Do you want to destroy me?

Nobody should be above the law or the tax and this makes us equal and hopefully the people realize that and make sure there are no special laws or special taxes to destroy anyone in particular

"If my rough calculations are correct, the tax would cost schools like Harvard between $1,000 and $2,000 per student every year."

I find it interesting that Mankiw (and Cowen) would frame this solely as a "cost per student" particularly given the recent debate about whether and how much the corporate income tax falls on employees. If it is true that lowering the corporate income tax has the effect of raising wages (and creating cushy jobs), imagine what eliminating it does to those few who are lucky enough to benefit from that exempt status!

It repeatedly amazes me how one's narrow self interest can fog objective judgement. A direct beneficiary of these exempt groups can (and will) always rationalize the tax exemptions (on contributions *and* endowment income) on the basis that it is for the public good (not my own), would "improve innovation" (more so than easing the burden on otherwise taxable endeavours), etc. Next thing you know, they'll be taxing apple pie!

As for "interference", well, carving out exceptions to the income tax is, per se, "interference" as much as any other subsidy is. That seems ok, as long as such" interference" benefits one's own narrow interest and the rather sanctimonious view that that interest is the only one furthering the "public good". My objection to the "focus" here is that it is indeed too narrow. If only it were a "slippery slope". Alas, the tax exempt industry is the most powerful lobby in the United States today. They will ensure this proposal never passes and, in doing so, they will never mention their inherent conflict of interest.

The answer is yes. Debt is $20.5 trillion now and galloping along. All honey pots are fair game, particularly those that subsidize the shockingly wasteful institutions of higher education.

Agreed. Someday we will need to pay the Obama debt.

Oh gawd. And the Trump debt and the Bush II debt and the Clinton debt and the Bush I debt and the Reagan debt and....

" ask yourself whether this tax hike is a sensible way of paying off our huge and growing debt."

mere days ago TC told us that the debt and deficit were a given and therefore irrelevant when discussing tax reform. oh well

We don't need tax cuts; we don't need a bigger deficit.

All these arguments come back to this: If you want to do something stupid, this is a smart way to do it.

Today we're not talking about a tax cut, but about a tax increase.

And why are you talking about it? To try to offset tax cuts. The style of the rationalizations remains the same.

This is the worst kind of micromanagement, 3 billion?

The big picture matters here. On 1955, 2.5% of GDP was captured by federal taxes, it went down to 1.5% by 1970 and being around 0.5% since 1985.

Fuel taxes are not indexed to inflation are a couple orders of magnitude larger than the university tax.

Tax to GDP ratio has never been lower, why the narrative of big government?

On 1955, 2.5% of GDP was captured by federal taxes, it went down to 1.5% by 1970 and being around 0.5% since 1985.

What a bizarre claim. I promise you, the federal government does not collect $92 billion a year in taxes.

That's the amount of excise tax.

There's going to have to be a Dissolution of the Monasteries. Until a Cardinal Ximenez or a Henry VIII comes along, then this is at least a start.

Of course, there's an urgent need to apply it to "Foundations", probably taking, say, 90% of the capital of any foundation the name of which contains the letter C.

What happened to the argument that increasing the deficit is ok because rates are historically low and we are still dangerously close to the zero bound?

Haven't heard that one much since the wrong person won

That was about reducing a high unemployment rate. That goal is gone now that we're below 5%.

LOL. The chart you are referring us to is with respect to *excise taxes* only. A more relevant chart regarding all federal taxes can be found here:

Federal taxes as a precentage of GDP have been amazingly steady since 1955 at about 17.5 percent of GDP.

But, the total of federal, state and local taxes shows a somewhat different picture:

And, a more relevant measure of the "size of government" would likely be the level of total spending, for example:

This in reply to Axa, comment 14.

The solution is simple: Harvard should incorporate abroad, preferably Ireland, send its intellectual property assets the the Caymans, and get PWC to help them bring their taxes to 0. They should consult with GE and Apple first.

The point of the criticism of the endowments is that they have lost focus on their original purpose, which was to help fund the colleges to which they were affiliated. Endowments today exist for the primary purpose of growing the endowments. Even if that's true, I don't see how imposing a tax would encourage the endowments to return to their original purpose. Maybe a requirement that the endowments distribute some minimum percentage of their assets to the colleges might do it, but that substitutes the judgment of Congress for the budgeting judgment of the managers of the college and endowment, the latter taking into consideration the future needs of the college as well as the projected future gifts to the endowment (and projected future earnings of the endowment). I suspect many managers fear that today's good times won't last forever and that the endowments must do what they can now to grow the endowments in order to meet the college's needs in the future. .

When times are good, universities add to their endowments so they will be OK when times are bad. When times are bad, as in the recent great recession, universities raise tuition, to keep from having to dig into their endowments, which aren't doing so well.

The very fact that this tax has been proposed and has a serious chance of being adopted shows that the focal point of non-interference has already become less focal.

>I don’t like to see the government deciding to go after a new source of wealth for its tax base.

Well, aren't you the lying sack jackwagon, Carbon Tax Boy.

You oppose it because it's Trump's idea, and because your job depends on stating that you oppose it.

It's a perfectly good idea, and long overdue, no matter whose idea it is. Colleges are not meant to be multibillion-dollar money laundering operations.

Why are public colleges excluded from the proposed tax? Several public universities have large endowments. And if the purpose of the tax is to encourage the colleges to spend the endowments in order to achieve lower tuition, that purpose has even greater application to public universities since they are funded by the state. I suspect that public colleges were excluded because they didn't want to discourage gifts to public colleges and their endowments, which would increase the burden for funding on the state. More likely, very little thought was given to the proposed tax, as it is just one of many in the grab-bag of pay-fors.

Well, if one knew a little about the law, one might know that the federal government does not have the power to tax states in that manner.

Actually, an endowments (or more accurately, foundation) for a public university is separate not for profit corporation whose purpose is to support the public university. If one knew a little about foundations, one might know that.

The endowments are balance sheet assets of the universities. Not money they've given to random people in hopes that they'll someday get more money back. State-owned funds. You could alter things to tax income of the 501(c)(3)s that manage them (to the extent they're managed by such entities. Not all of them are), but not the government assets under management.

Are you also under the impression that the feds can directly tax assets under management for state pension funds?

Professor Becker was well-known for demanding that his students provide proof for their statements: "Where's the proof?" Here's an interview of Steven Sloman, the author of The Knowledge Illusion: Why We Never Think Alone: Sloman says (near the end of the interview) that people who are more reflective are less susceptible to the illusion, and that demanding proof encourages reflection. The problem is that most people aren't capable of reflection. Sloman says that a better approach would be to focus not on proof but on consequences: "When you talk about actual consequences, you're forced into the weeds of what's actually happening, which is a diversion from our normal focus on our feelings and what's going on in our heads." One should ask: what are the consequences of imposing this proposed tax on endowments?

"Where's the proof?" is a stupid question. "What's your evidence?" is far better.

Professor Becker certainly wasn't stupid. If you look up the definition of proof you would find that it means evidence; and if you look up the definition of evidence, you would find that it means proof. According to Sloman, roughly 70% of the population doesn't like to think, or likes to think as little as possible. I think he is a bit optimistic, don't you?

And if you thought any you'd realize that dearime is giving you some good rhetorical advice (good advice from dearime is about as rare as brevity from you so treasure it).

I'll say one thing for rayward: his posts have gotten significantly shorter. Of course, then you're more likely to actually read them, so now he gets mocked a lot more.

Interesting I stopped reading them when they were still in their verbose from so I missed the transition.

As Keats famously pointed out in his "Ode to a Greek Axiom", "proof is evidence, evidence proof"

Professor Becker certainly wasn’t stupid. If you look up the definition of proof you would find that it means evidence; and if you look up the definition of evidence, you would find that it means proof.

No it doesn't. 'Proof' is a demonstration of an argument. 'Evidence' consists of elements of that demonstration. Mathematicians compose 'proofs', not 'evidence'.

Your beef is with Webster's, not me.

As almost everyone on this blog knows, you can't prove anything with evidence; you can only accumulate evidence in favor of or against a hypothesis, leading to increasing or decreasing levels of belief that it is correct.

The advantage of the brevity of Twitter is that farts pass for wisdom and insults pass for reason. I assume that Cowen and Tabarrok use the format of this blog because they don't care for the smell of farts and prefer reason over insults. But that's just my assumption. I very much miss the dialogue between Becker and Posner on their blog. Neither farts nor insults there.

One argument against might be that the state unfairly favors these private universities' competition by funding public universities. So the "fair" solution would be:

1. Tax the endowments of private universities as proposed,

2. Transition all public universities to "private" by cutting off all state funds, both federal and state level.

3. Use some portion of the additional tax revenue (and savings in the form of revoked funding) to fund need-based scholarships to adjust for the fact that the "budget" option of "in state tuition at a public university" no longer exists.

Non profits don't have competitors. I mean they do but that's because their supposed mission (which is the reason for the tax exemption) has been obscured.

I think the problems of this tax bill are less in its details than in its overall structure.

It is a reverse Robin Hood.

That said, I could see some room to normalize the whole profit and nonprofit thing, so that it is less category and more based on operations. A nonprofit that reinvents more than it spends might deserve a little tax.

In lieu of taxing their endowments, why not some changes in corporation law which require:

1. An institution have a manageable number of trustees (< 20).

2. Have trustees elected in a postal ballot of alumni who are state residents. There would be no internal nominating committee. Aspirants would register with the secretary of state or state board of elections by placing a deposit. The state authorities mail a postal ballot to every voter with a prospectus containing a 600 word statement from each aspirant.

3. And some changes in federal labor law which render unenforceable inter-state contracts for employment extending beyond seven years in duration. Conjoin these to like changes in state law. Replace continuous tenure with renewable 7 year contracts, and make renewal contingent on a vote of a majority of the the (reconstituted, extant) trustees, with the yeas and nays recorded

4. Eliminate the baccalaureate degree

5. End public subsidies to private higher education.

And the point of all this nonsense is?

You called it 'nonsense' because you know the point and you know it's not. Just injurious to certain vested interests who deserve to be injured. (You especially).

Today's colleges/universities are profit-maximizing corporations (certainly revenue maximizing) who masquerade as non-profit institutions. They have driven tuition through the roof -- in tandem -- making education nearly impossible for all but the wealthy. And the result of their collusion in raising tuition? Large increases in faculty salaries, reduced faculty teaching loads, deteriorating academic standards, college Presidents --gutless, spineless college Presidents--and other administrators earning outrageous salaries as they restrict free speech and intellectual diversity. Tax them

They have driven tuition through the roof — in tandem — making education nearly impossible for all but the wealthy

Yep, that's why we see that steady decline in college enrollment over the last 40 years since college costs started spiking. Because that's a thing that really happened.

In the real world, kudos to Kling:

Governments subsidize demand and restrict supply. Price goes up.

The end.

So if a college has an endowment of $100K per student and earns, say, 7% returns, that spins off $7K per year per student. I might be more sympathetic if we combined this with an exception clause that said if a college kept its tuition increases to inflation or less, it wouldn't have to pay the tax. That would provide an incentive for colleges to use their endowments to hold tuition in check. It would also raise money on the gov't side since lower tuition increases means lower pressure on spending to subsidize tuition.

Again, this is not worth deep economic analysis. It is a purely political move.

The GOP attack on education continues.

It's no fair- they ensured me I only got to shove my boot into their tribe's face. We were supposed to have a permanent majority.

Education != universities.

The marginal dollar of funding goes, presumably, to the least worthwhile activity. Universities had been going out of their way to demonstrate that the value of the marginal dollar of spending is now actually negative.

In a similar vein, I expect you will see decreasing willingness from state government to keep writing blank checks to state educational institutions.

The new taxes apply to PRIVATE universities. It's shocking but not surprising to see the far right support the massive theft of private wealth, so long as it is taken from politically disfavored people.

Endowments at ivy league schools have nothing to do with education. They are part of America's analog of the old European hierarchy. The ruling elites use it to maintain their control and ensure their progeny get to rule.

We are done with that.

We’re going to rule one way or the other, mouthbreather.

The elites repressed by Mao and company, they had children.

Those families have risen back to the top of modern China. Like the density of liquids, you can shake up the beaker. But the ordinal status will return as the dust settles.

Blood will out.

The GOP attack on education continues.

No, the GOP attack on higher ed Bourbons continues, as it should.

Harvard is a financial firm and should be taxed as such. It's endowment generated $137,000 per student where tuition is around $60,000. Offering classes is a side line.

Are people ok with this? Doesn't this seem disgusting? Not that Penn is any better.

It is disgusting.

What exactly about it disgusts you? The billion dollar bonuses the president gets?

They're disgusted by the idea that people get a return on their capital.

So that is it. Even education must be sacrificed to Moloch.

1.4% is WAY too low. Multiply by 10. Or maybe 30.

The super endowed schools have been endorsing big government for decades, to the point of coddling communists. Let them feel the bite of the taxes they advocate.

In which freedom-loving conservatives champion government suppression of opposing views...

I champion making those who want government spending to pay taxes on it if they are able. This mean that city public transportation should be paid for by city residents and/or surrounding suburbs. This means that massive defense expenditures should be paid for by high taxes on the rich vs. deficits.

I grant that some services are more easily paid for by government. But the maximum extent possible, such group buying should paid for by the groups in question.

The "starve the beast" strategy for containing government spending has failed utterly. So I now advocate: "if you want it, pay for it."

Good! And I say this as a student of a university which will no doubt be afflicted.

The short-term economic logic makes perfect sense. Higher education can be a worthwhile pursuit, no doubt -- but its role has become laden with too-costly signaling games that don't add a thing to the human capital resources of this country. The system consumes four of the best and most productive years of our brightest, loads young people with burdensome debt... all in service of signaling and BS. Some people (law students, med students usually) get actual applicable knowledge; but look at the course distribution of a typical student and you'll find it to be 80% or 90% pure unadulterated nonsense (or, worse, ideological indoctrination). Tax this steaming pile of unproductive idiocy, it's practically free money.

The long-term economic logic makes perfect sense. The system bloats and bloats -- adding all sorts of nonsensical requirements, pumping up the popularity of courses whose actual use is, um, limited in the real world -- because the university system has the resources and status to sustain this. Once all this unproductive activity is taxed, we'll start finding that such departments maybe should be downsized a bit and talented students channeled into the actually economically useful studies.

The political logic makes perfect sense. The university system has hijacked the national discourse, and controls unchecked power in shaping the attitudes of the next generation. They've used this power to begin policing political attitudes: the USSR had its political commissariat and Departments of Marxism-Leninism; and the USA has its "diversity offices" and Departments of Gender Studies. All this activity is not only economically unproductive -- it's naked political indoctrination, into an increasingly rigid and destructive ideology. My university (supposedly a relatively non-ideological one) at some point held a day of political activism -- every single event was loony-left -- which included such gems as "Multicultural Stories for Kids". Boy, I didn't think they'd stoop that low! Replace "Multicultural" with "Marxist" or "Aryan" and you can easily transport the setting to... but I repeat myself. That this happens routinely at such influential institutions is already bad enough; that they happen at institutions which are exempt from taxes is sheer madness.

These aren't vocational colleges. You shouldn't find it sutprising that you don't see the immediate use of what learning happens there.

And is it such a terrible thing for some of the brightest to have the option to explore knowledge instead of being presumed a pawn of Stalinist needs where all resources must be directed towards the eternal arms race, or else be deemed a waste of air?

The economy is for the people, not the other way around.

"Exploring knowledge" is fine and dandy; but the fact that one needs a degree to get a decent job rather quashes that explanation of what the universities do. And besides, much of what the universities call "exploring knowledge" or similar is in fact just ideological indoctrination. You'd think that an institution that really valued "exploring knowledge" might allow people to speak their minds, even if it was contra the current progressive orthodoxy; instead they employ all sorts of officers whose job is effectively thought-policing and propagandizing. The only debate which can be held in public is: "Is progressive orthodoxy correct, or does it not go far enough?"

The great lie of the university system is: "You need us to become a real human being".

I haven’t heard anyone oppose the tax on the investment income of private foundations, other than diehard anti-tax types. That tax has hardly vanquished the private foundation form.

That's a very poor comparison. Foundations do not typically have anything like the number of employees that universities have, for many reasons. They don't have the same kind of physical plant to maintain. In short, they have nowhere near the fixed costs of a university, and their function is entirely different.

Nor do they provide the kind of positive externalities to the community that a university does. Nor do they pay property taxes (or payments in lieu) as a university does. Nor a million other things.

I'm pretty far left and I would gladly support taxing private university endowments to, like, pay for a corporate tax cut. Or to pay for digging holes and filling them up again.

Harvard and the like are some of the most awful indefensible institutions in America.

Let's do art museums next!

I think after a certain point you have made enough money. (blinks earnestly)

I’m still waiting to see that point reached. Until then, I guess those $500,000 speeches are still all good.

Don’t be suckered by the “give up education for tax cuts for millionaires” non-rigorous rhetoric you will hear.

Why is it non-rigorous to suggest that taxing universities and not estates is worse for education than the opposite?

Lack of rigor? Is this really a complaint coming fro the director of Mercatus?

The USA attracts more foreign born researchers per research than any other country in the world.

This is in no small part due to the fact that a large share of the very top places of study for numerous subjects are located in the USA.

If what might be portrayed as a subsidy to the most expensive universities with the largest endowments, which in addition to subsidizing education of students of limited means also distribute amounts that benefit youth who grew up wealthy and are basically certain to remain quite wealthy ... well, if you take away that subsidy, or even reduce it, then this can only have a negative impact on the most easily controlled variable, price, in what may be the #1 competitive advantage for the American economy: its ability to retain foreign talent that is originally attracted by money, repute, anti-dictatorial ideals, and/or other reasons.

Whether this tax could possibly reflect some notion "optimality" should very much be up for debate, but lets first acknowledge that in a context where $1.5 trillion tax cuts are proposed, most of which of questionable rationale, it is likely that the political and interest group dimensions are far more relevant than whether it's good for the economy.

Trump gets to kick coastal snobbish elites in the balls, while being able to portray himself as fiscally careful and concerned about the deficit, while handing out literally 1,000s times more in tax cuts, most of which are probably more difficult to justify economically than the levy on university endowments.

Anyways ... University of Toronto, UBC and McGill, maybe a few others, should each hire an extra staff for international recruitment purposes if this goes through.

Regardless of label, isn't this a direct tax? If so, wouldn't the constitution require that the tax be apportioned among the states according to population?

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