Last week, I noted this story in the Globe discussing a proposal by Representative Paul Kujawski to levy an assessment (of 2.5%) on non-profit or university endowments that are in excess of $1 billion. Interesting proposal and I guess it garnered a fair bit of support during Budget debate in the House.
I was wondering what people think of the idea. Should Harvard, sitting on a $34 billion endowment, be taxed on it?
From where I stand, I ultimately don’t believe that idea would be a positive one. I think non-profit status means just that and that the size of the endowment, even when seemingly excessive, is not a fair gauge by which to determine non-profit status or taxation. That said, I do think the public mission of our major area universities, and whether they give enough back to our State, should come under greater scrutiny.
This issue touches on a wider question about what responsibility non-profit institutions have to their host communities and States, particularly when they are major community players – impacting towns and cities in numerous ways, from use of resources to social cohesion. And here again, I wonder if the State and area towns and cities have developed the right level of partnership and/or maximized the benefits of robust schools and other non-profits for the wider public good.
I think this wider issue is what should be looked at and not simply the matter of getting some more money out of our colleges. One of my consistent bugaboos is about how our State Government is surrounded by some of the best minds in the world on any number of issues but does too little to harness this wealth of knowledge to improve State Government. I’d like to see State leaders do more to foster partnership with our world-class institutions, but the onus should not just lie with politicians. University and non-profit leaders should also seek to support State Govt and local communities more (from research and ideas for policy development, giving scholarships to local kids or to mentoring/volunteering) – for there is no doubt that the strength of Harvard or Tufts or Emerson or any of our local schools is in large part tied to the quality of life in the communities they reside in.
So here’s to hoping that while taxing Harvard may not be the best solution, the issue can spark debate and focus minds on building a stronger partnership between our well-endowed non-profit institutions, the State and local communities — so that ultimately that relationship works to the greatest possible benefit of Bay State residents.
…on the whole thing because, as a liberal, I recognize that the issue is at least somewhat complex and that the devil would ultimately lie in the details. But I can understand how some might feel that the assets in question no longer necessarily work toward the non-profit mission that the tax status was meant to encourage in the first place. Furthermore I can appreciate that someone might see that and wonder what the details are, is the impression valid, and what could be done to rectify it if the conclusion is that things are indeed ‘out of whack’.
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p>Certainly the tax status of the non-profit is a policy expression that the state has an interest in it. Such an expression is not necessarily an expression of state interests in non-profits, but rather an expression of interest in the non-profit’s mission. This could lead toward a way of thinking of the status not of the non-profits, but of the status of their funds classified by the particular way the funds are used in relation to (or not) the mission. I would probably put forth that it is at least possible, to draft the tax status such that the non-profits assets tax status is linked not merely to the fact that it’s owned by a non-profit, but rather the special tax status for such assets could be reserved for those assets working financially toward the non-profit mission that the state has an interest in. That way, should assets be utilized in a way that deviate from the missions that the state give special tax status too, that portion of funds could be taxed without the special status.
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p>Just my 2 cents.
Great post, Mr. Lynne.
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p>Tax or no tax, is there a need for greater oversight of the nonprofit status? Do the guidelines need to be rewritten or reinterpreted?
already here
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p>It all comes down to this: the state needs more tax money to fund crucial services and programs. It can come from you, in the form of more taxes and fees, or it can come from elite universities whom are sitting on billions of accumulated wealth. The marginal cost of a tax on you will be much greater too, I can guarantee that.
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p>Here’s another idea: 1.4b annually is more than enough to cover free higher education for all. Making higher ed a right, not a privilege, would not only be appropriate for ethical reasons but would also greatly improve the state’s human capital.
is that everyone in the state has equal access to public higher ed, just as they have access to k-12, regardless of income.
First of all, the word ‘ethical’ connotes to adherence to a defined code of conduct. It is ethical to report your income at tax-time; the stance of society on whether to fund public K-12 education is a different sort of choice and there are better words to describe it.
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p>Second, I see a lot of differences between K-12 education and higher ed. One is the legal minor/adult status. Minors, who are typically in K-12, are not expected to have income; but it is possible for adults to pay their way through higher ed.
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p>I do believe that a person values that which they pay for.
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p>I also have a question about financial aid which I will post below.
For the vast majority of people who attend college, it isn’t possible. Now that it’s coming time to pay my college loans, I think I must have been bat shit crazy to be willing to take on all that debt. I really had absolutely, positively NO IDEA what the hell I was getting myself into. I, at 18, was one of those adults who could ‘possibly’ afford to pay through college? I went to public school and still accumulated nearly $50k in debt – and I had a decent financial aide package.
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p>I’m sorry, but there aren’t that many people who can afford that kind of thing. Certainly, there are people who could afford a class at a Community College every now and then, but anything that involves really going to school – which means that working full time through it is essentially impossible – is not possible for the vast majority of Americans.
If I could do everything all over again, I’d have done 2 years at a community college, then two years at a UMASS. I’d have two degrees right now and be in $30,000. I actually can’t say enough good things about Governor Patrick’s idea to make community college free in this state – it wouldn’t cost that much money, it would fill up some of the empty seats and it would increase our skilled workforce, helping pay for itself in the long run.
I believe that education–along with health-care, public safety, clean environment- are goods that should never be traded as commodities in a market.
The real question is what is in the best interest of the society.
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p>We’ve gotten to the point in our economy that a high school diploma no longer really cuts it in the marketplace. Companies looking to relocate to states or expand in the states they are currently in are, by and large, looking for highly educated workers, i.e college educated workers.
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p>One could certainly make the argument that it would be in the economic interest of the Commonwealth to provide all citizens a free education up through undergrad or, perhaps, even grad school.
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p>As for whether people value something more because they’ve paid for it, I don’t know that that’s true. I certainly value my high school education and I didn’t pay for it. In college, I screwed around so much that my folks stopped paying my way and I was forced to pay my own way. It didn’t stop me from screwing around because I now somehow “valued” the education more. In fact, it eased my guilt about wasting my parents money since now I was just wasting my own. (Thankfully I eventually stopped screwing around when I finally matured a bit more.)
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p>As another example, which would you value more, the watch that you inherited from your grandfather or the exact same watch that you bought in an antique store? I suspect that it wouldn’t be the one that you bought.
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p>This may be due less to the value of a college education than to the lower quality of a high school education. Both colleges and employers are finding, over the last decade, a need for remedial training in reading and basic arithmetic from those newly minted high-school grads.
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a HS diploma no longer provides a reliable signal that an applicant will be adept and obedient.
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p>Hell, even a college diploma is ceasing to be an effective signal because they are now standard.
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p>SethJP is absolutely right- we talk a lot about competing in a global marketplace, and nobody ever mentions the fact that many of our competitors offer free ed even through the graduate/postgraduate level. Talk about competitive disadvantage…
But, more importantly, I think we need to start discussing some of the continuing changes in the global economy and how these necessitate a changing view toward education.
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p>Take, for instance, the tax preperation market. The basic gruntwork of actually crunching the numbers and filling in the forms is increasingly being outsourced to places like India. The upside of this is that it allows the accountants here in the States to spend less time on the grunt work and more time being creative about helping to manage their clients’ wealth (and more time actually sitting with their clients). The problem is, though, that this kind of “creative” work takes more specialized knowledge and, with more and more entry level jobs being outsourced, where is a young accountant to get that specialized knowledge? She’s going to have to get it in college.
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p>My point is that, to continue to be competitive, we’re going to have to continue to become increasingly more educated. With the cost of higher education continuing to increase, we’re not going to be able to do this unless we start to work on a way for undergraduate and graduate level educations to become substantially more affordable to a substantially wider swath of the Commonwealth’s (and nation’s) population.
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p>Is the answer taxing wealthy universities’ endowments? Maybe not. But if it pushes them toward offering more and more financial aid in the form of straight grants, or if those taxes help subsidize state universities and colleges, maybe it’s not such a bad idea.
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p>It’s worth discussing, at least.
It’s not really worth discussing if you’re going to water down a college education as a mere extension of a failed high school education.
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p>If high schools fail, then the answer is to put money into high schools succeeding. Drawing out the failure over the course of an undergraduate degree makes very little sense.
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p>An example: Nurses today are equivalent in knowledge and experience to that of a doctor a generation ago. The same nurse you might see today is giving you care equivalent to that of the doctor your parents saw when they were your age. Is this because they paid for more people to go to medical school and become doctors? Of course not. It’s because of a focus on educating nurses better.
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p> Sending more people to college isn’t going to fix the problem if the problem is high schools aren’t getting the job done.
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Where exactly does Seth suggestion the following:
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p>Honestly, Massachusetts has the best k-12 educational system in the country. I really don’t think that’s the problem, but even if it is, that wasn’t one of Seth’s points (at least in my reading of it).
What I’m saying is that a changing workplace is requiring a different level of education for entry level workers. Since what we used to view as “entry level” is increasingly being outsourced oversees, the remaining jobs require specialized levels of knowledge that workers used to get “on the job.” Since the “entry level” positions are increasingly disappearing, there are less and less places for young professionals to receive “on the job” training; so, therefor, they need to turn toward specialized degrees to fill the void.
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p>All this is predicated on the incoming grad students having gotten proper undergrad educations and the incoming undergrad students having gotten proper high school educations.
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p>High schools never taught students how to create complicated wealth management plans, design green architecture, plan urban transportation systems, engineer proprietary software packages, etc. Nor, for that matter, did undergrad. It has always been the role of graduate studies (or job experience, mentoring, etc.) to provide this degree of knowledge.
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p>All that being said, and just to be clear, I in NO WAY advocate the watering down of highschool education.
Colleges over the past few decades haven’t exactly been ethical institutions, have they? Price gouging, loan scandals, Ivy League schools with infinite assets paying janitors minimum wage in Cambridge…
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p>Sometimes these things need a good kick in the butt. Other times, calculations are needed that sometimes hurts the few (a little) to the gain of many. Taxing the top 9 wealthiest schools in Mass a little as a means of giving free public higher ed to everyone in the state would not only serve the best interests of this state, but greatly expand the information/technology sector of this state’s economy, growing tens of thousands of jobs that’ll stay in Massachusetts forever.
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p>I still don’t like that idea as much as my own – linking the tax status of the schools to what those schools do with their funds. For example, if schools use some of their funds to make college affordable for all working class families that attend their school, they could be forgiven that debt. These schools have that kind of money – we’ve already seen several Ivy Leagues go in that direction, such as Dartmouth. The 9 schools in Massachusetts that would fall under this could all afford to do something similar to Dartmouth, making college free to anyone who would have to struggle to afford it.
I kinda figured this would have come up already. Thanks for feeding in again.
… about not just the size of endowments, but specifically about disbursements therefrom. Accumulating (and profiting in interest on the accumulation) is a long term strategy for the posterity of an institution. Debate has centered on a minimum percentage of annual disbursement from the endowment in order to achieve present day goals and provide present services, as well as to maintain non-profit status.
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p>Last year, Harvard changed its distribution policy
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p>Amidst lots of information on new construction and decapitalization…
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p>http://harvardmagazine.com/200…
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p>Harvard has recently also divested itself of a blatantly for-profit consulting business, Harvard Medical International, transferring it to Partners Healthcare.
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p>Interesting insights on this issue at http://harvardmagazine.com/200…
the proposal will put pressure on Harvard to contribute (even) more to the community.
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p>A small example (and a personal pet peeve): They could open their wifi network (http://www.wireless.harvard.edu/) to anyone.
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p>Of course, if they stop honoring God, the whole deal’s off.
On the other hand, I see that nothing herein shall be construed to prevent the legislature of this commonwealth from making such alterations in the government of the said university.
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p>Sounds like the legislature has full authority to alter the government of Harvard. I wonder what the “republic of letters” is?
which is interesting. Does that mean that the legislature can trump the trustees? Appoint Billy Bulger or Sal DiMasi president of Harvard?
I owe you a coke, they.
The SNL version, starting “inkie, dinky…”?
So, my question is…if $1B is the cut-off for taxing an endowment, would they just split it up and start playing games…i.e. “this is the endowment for Harvard Medical College” “this is for Harvard Business School” “this is for Radcliffe” etc.
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p>I’m not saying those are all separate legal entities now…but I’m saying, could they be…could games like that be set up if needed, to split a $4.5B endowment into five $0.9B endowments (for example)
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p>My second-last point: these guys have really smart people managing their endowments. Good luck getting a dime out of them.
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p>My last point: It’s a bad idea. Let the universities do their own thing. With the global competition in the technology industry going the way it is, further taxing our universities is defined as “aiming gun at foot and pulling trigger”
I reiterate the opinion that how Harvard spends that money should determine whether we levy a small tax on some of their investments (hedgefunds and the like). I think this is an absolutely fantastic way of pushing these expensive private schools – of which Harvard represents only 1 of many in this state – to make their schools truly affordable to all. Several Ivy League schools have moved in the ultra-affordable direction of letting families with incomes upwards of 70k a year go free or close to it (such as Dartmouth).
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p>With 34 billion in assets, Harvard could afford to join its brethren in that endeavor as well. More importantly, there are plenty of other colleges and universities with large endowments in this state that ought to be making similar promises. So, taxing their hedgefunds would be a great idea if we include a clause that they be forgiven their taxes if they give out X% of tuition wavers to Y% of students, based on income. Furthermore, such a measure would infinitely increase the popularity of taxing them in the public – because everyone and their mother knows that many of these schools are fleecing their students time and time again; this would only make things fair.
Curious about this topic:
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p>My impression is that top-tier universities (MIT, Harvard, etc) are giving scholarships up to a full ride as-needed, after doing admission ranking according their merits. (I remember that MIT claimed to follow this policy as of ’98, although I don’t know what specifics they used) Is financial aid more limited at second-tier universities?
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p>What is the reality of college and financial aid today: In terms of student financial status, student academic ability, and types of college in question, which students fall into the category of “I want to go to college and could if I had the money, but I don’t, and I couldn’t get financial aid, so I am out of luck”?
… system to classify exemptions based on the funds’ uses, can you imagine the beneficial results of including a 100% deduction on a fund’s CG taxes for monies spent on tuition grants?
But I do know that schools like Harvard aren’t going anywhere near where they need to in those terms. Certainly, a lot of people at the bottom are receiving help, but it’s that middle group of people that so often get screwed over. Several Ivy Leagues – not Harvard (yet), but including Dartmouth – have moved in the direction of completely paying for everyone with a family income of less than X% (I think around 75-100k or so, but it’s been a short while since I read about it). This kind of thing, I feel, could be a great carrot/stick approach to get schools to pay for kids stuck in that donut hole.
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p>Furthermore, there are 9 schools that would be targeted in this measure… so we’re not just talking about Harvard and MIT. We’re probably also probably talking about BU, BC, Tufts, Brandies, WPI, etc. This kind of incentive would be enough to get most of these schools to do the right thing, but if they don’t, then I think it an absolutely fantastic idea to apply the taxes to provide free scholarships based on need for public university students. It wouldn’t take much of them to make it so public universities would truly become affordable (meaning many thousands would be spared the current nightmares I’m having – quite literally – over these quite sadly government loans). I really don’t see how such a sensible and expedient idea could merit any true resistance by the people of this state.
MIT pays property taxes on non-academic, investment and commercial property. In 2004 they payed $23.5 million. I couldn’t find any current numbers.
FYI I think you are refering to a PILOT (payment in lieu of tax), which is not a property tax, but is an amount negotiated with the city manager to keep Cambridge happy. MIT and Harvard both pay it.
They pay PILOT (for I assume the academic buildings) and property tax for non-academic buildings. In 2004 I believe their PILOT payment was 1.2M.
Universities pay PILOTs on those buildings that directly serve educational purposes (the library, buildings housing class rooms, administrative buildings, dorms, etc.). They pay property taxes on those buildings that do not (investment properties like hotels, rental housing, commercial properties, etc.)
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p>Some buildings are covered partly by PILOTs and partly by property tax.
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p>Most cities argue that they don’t pay enough in PILOTs, but that is an entirely different argument.
My point was that some of these colleges could do a lot more to make college affordable for middle class citizens. The basis of this post, to me, presents an interesting carrot/stick approach of doing that.
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p>If you’re trying to suggest that because they pay property taxes, they shouldn’t have to pay taxes on their hedge funds… that’s not exactly a winning argument. Only the wealthiest people and entities in this country have the resources to pick and choose which taxes they pay. If we could create a system to prevent that from happening, the world would be a better place.
All I’m trying to point out the fact that MIT pays property tax. That’s all. When examining whether colleges should pay more we should accurately look at what they are already paying. I was just trying to add to the conversation.
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p>RE Harvard – this is a pretty good step in the right direction.
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p>A blanket tax on the entire endowment is almost certainly out of the question. Such a blanket tax would engender great and substantial conflict with existing laws regarding charitable donations, torts, trusts, estate and inheritance law, non-profit status as well as a tangled myriad of other tax-exempt designations (e.g. research, education and religious).
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p>Years and years ago Cambridge agreed with both Harvard and MIT to accept a PILOT (Payout In Lieu Of Taxes) to the city of Cambridge to avoid exactly these kinds of conflicts in local, state and federal law AND to avoid scaring off potential donors who like to know that their tax-exempt donations will remain exempt from taxes. Some of them are also quite testy about inheritance tax and may become cautious in their wills.
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p>Both MIT and Harvard already pay taxes on non-academic properties and commercial ventures.
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p>The other issue: since the endowment is not a slush fund, but a collection of directed gifts, Harvard is not legally allowed to pay from the endowment any tax (or really, in this case a fee) and will, if forced by the ledge, be required to come up with the money from elsewhere. The endowment is a collection of agreements between the institute and individuals made in the context of prior tax law. I suppose the ledge could make future agreements taxable, but they’ll piss of a heck of a lot of rich people if they try to make it retroactive.
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p>What is possible, but not necessarily recommended, is to tax surplus: interest accrued from investments and trusts which make up the endowment (for example, a gift might be in the form of a trust in perpetuity to the university, which might be invested, or borrowed against). It’s hard to say that this will garner any more revenue than is already generated by the PILOT and existing taxes. I suspect any gain on present revenues will be swallowed by implementation and administration costs.
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No one in this thread is suggestion exactly how to do it. That would be a question left up to the experts, including legal experts. The point of this thread, in my view, is to discuss whether there’s something to this idea. Perhaps some of these endowments should be taxed, but not all of them? Perhaps we should set conditions that determine whether or not they’re taxed – such as how much financial aide they offer to middle income families, the types of people who are typically left behind in financial aide packages. Perhaps these aren’t good ideas at all, but there’s something else we should be doing instead – feel free to contribute your alternatives.
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p>My point is that this thread has less to do with the technical aspects of how we’d do it than it does in whether or not it’s actually a good idea in principal. After all, as people say, first things first – we have to see if this idea warrants further consideration, before we’d look into how it could actually be accomplished.
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p>That’s a great philosophy. Let’s all pick and choose which taxes we pay – that’ll work out great. Again, I reiterate, we should carefully consider whether the idea has merit before we’d look into how we’d accomplish it. I’m sure, if people think it’s a good idea, we could do it in a way that won’t scare off donors or create discrepancies in federal/state/local law.
And complicated too!
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p>Already, there are troops of green eye-shades figuring elaborate schemes to move the endowments out of the state, to avoid the tax bite.
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p>There are, it would seem, many people who think green living and solar power and a myriad array of other such ideas indeed “warrants further consideration” They are, to a one, continually confounded by the technical aspects of implementation.
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p>The technicalities here are showstoppers. Any implementation of a tax on endowments would stretch both the letter and the spirit of so many diverse laws that the finished product would little resemble the fantasy being peddled now and instead be a nightmare both gruesome and unwieldy throughout. We’d end up, under this scheme, with a blob of law on the edges drippy with loopholes, cadges, dodges, obfuscations and marginally legal ploys non of which would most likely stand up to even cursory legal challenges.
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p>I repeat: why do you think they bit on the PILOT fees to begin with…? You think they pay those outta sheer magnanimity? You think this issue hasn’t been thought through by better minds than yours?
… consideration by even great minds is not evidence that the current situation does not merit further consideration.
Got to be realistic about this stuff.
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p>As to the principals, I think they should do more for the public interest – but think taxing them is bad in principle. Not profits have no shareholders and no one who owns anything in assets. Can’t tax them, even when they are loaded. Would be a bad precedent. But, we can press them to do more (and maybe use the threat of action to bring them around.)
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p>From what I gather, that’s mostly what people have been talking about in this thread. Furthermore, if the University is sitting on billions in those kinds of investments, I think there’s a sound argument that can be made that they should be taxed at a low rate. As I’ve said before, we could do it in a way to be an incentive to create more affordable education, etc. Ultimately, government is decided by the people. We should be pushing policies that advance the common good. Universities with endowments that seem less like a number as they do ‘infinity’ ought to be making colleges affordable and paying all their employees a living wage; if they don’t, that doesn’t serve the common good and American citizens have every right to expect government to steer them in the right direction.
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p>The Globe article, and the legislators quoted, all throw around a Harvard payout on this tax of over 800 million dollars. That number’s derived from taxing the entire endowment, lock stock and barrel, not the surplus.
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p>So… if people here are talking about taxing just the surplus, then they aren’t on the same page as the ledge…
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“So… if people here are talking about taxing just the surplus, th”n they aren’t on the same page as the ledge…”
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p>Yes.
Sounds like you want to use the THREAT of this taxation policy to force them to change the way they run their institution. I wasn’t aware Harvard and others were started to “serve the common good” and I wonder when we’ll agree on exactly what that that means. In the meantime who will decide, Because you and I disagree.