STEPHEN MOORE: Time to Tap Into Elite Universities’ Endowments to Drain the Rich

By Stephen Moore |

Republicans are actively exploring options to finance their tax cuts, while Democrats advocate for increased taxes on the wealthy. House Ways and Means Committee Chairman Jason Smith has proposed a tax on college endowments, which currently total approximately $840 billion and are projected to exceed $1 trillion soon.

This suggests a pivotal moment for universities, often viewed as elite institutions, to contribute fairly to the public services they utilize. Despite their claims of promoting tax fairness, many higher education institutions remain largely untaxed, even as they accumulate vast wealth.

The expected influx of capital from billionaires like Bezos and Gates to these endowments could increase the tax base loss substantially. This accumulation often contains unrealized capital gains that have yet to be taxed.

For a tax system to function effectively, it should ideally have a broad base, ensuring that everyone contributes fairly, yet at a low tax rate. However, current tax loopholes primarily benefit the wealthy, allowing them to evade their fair share.

Notably, most endowment funds support prestigious universities like Harvard, Yale, and Stanford rather than smaller or community colleges. This raises questions about the fairness of permitting these wealthy institutions to evade substantial taxes while charging exorbitant tuition fees.

Colleges generally enjoy significant tax exemptions, rarely facing income taxes or property taxes despite their expansive, valuable properties often located in economically challenged areas. Donors are frequently encouraged to contribute, gaining the added benefit of bypassing estate and capital gains taxes.

While charitable donations to essential services like soup kitchens are warranted, tax breaks for institutions like Stanford seem disproportionate. With numerous universities boasting endowments of over $10 billion, the pursuit of public benefit becomes dubious.

Harvard’s endowment alone, nearing $50 billion, could fund free tuition for all its students indefinitely. Yet, it continues to demand tuition fees of around $100,000 annually, exacerbating the costs for families and taxpayers alike.

This situation highlights the increasing tuition rates at colleges, which have risen significantly, outpacing inflation. The assumption that tax-free donations contribute to affordability is misleading, as wealthier endowments often correlate with higher charges imposed on students.

To alleviate financial burdens on struggling urban centers, a requirement for universities and hospitals to pay property taxes could be beneficial. This adjustment would expand the tax base in communities where valuable real estate remains under the ownership of nonprofits, potentially reducing overall tax rates for residents.

Colleges and hospitals typically rely on city services more heavily than local residents or small businesses. Thus, it stands to reason they should contribute to the costs of these services.

Economist Richard Vedder has criticized these tax subsidies for wealthy universities, calling them one of the most regressive elements of the current tax code, as they disproportionately enrich the affluent.

In a parallel to the satire found in the film *Animal House*, it might be said that many universities today resemble investment firms disguised as educational institutions, focused more on wealth accumulation than on their educational missions. As such, ensuring these institutions pay their fair share seems both pragmatic and just, potentially aiding in the funding of broader tax reforms benefiting all.

Originally published by the Daily Caller News Foundation.

Stephen Moore is a contributor to The Daily Caller News Foundation, a visiting fellow at the Heritage Foundation, and a co-founder of Unleash Prosperity.