9 ms·

Ending the Ivy League's Tax Dodge

• dontreact 3y ago
  It seems like a good idea that if the endowments are getting so big that covering tuition for all of their students would still allow them to grow, then it's time to push for more of the money to be used for paying for public colleges. Although I wonder what the weird second order effects will be.
  • NovemberWhiskey 3y ago
    >the endowments are getting so big that covering tuition for all of their students This sound bite always comes up. The simple fact of the matter is that for these institutions, the endowment is essentially composed of gifts, and returns on investment of gifts. Many/most gifts are restricted, meaning that the donors gave them to be used in specific ways - like to fund a specific professorial chair, or for a particular library or whatever - and it's just not an option to use them to fund tuition or for other purposes. Data point: Harvard's endowment has over 14,000 individual funds and the majority of them are restricted.
    • dmoy 3y ago
      Is there a rule against perpetuities for gifts like there is for a lot of trusts? i.e. after N period of time, the restrictions no longer apply? Could be a major pain in the ass to keep track of though
      • silverquiet 3y ago
        I'm not exactly thrilled about the plutocrats continuing to rule us from beyond the grave.
        • NovemberWhiskey 3y ago
          I'm not sure that Thomas Hollis funding a chair in divinity at Harvard (for example) meets that definition in a meaningful way.
          • zer00eyz 3y ago
            "The God that holds you over the pit of hell, much as one holds a spider or some loathsome insect over the fire, abhors you, and is dreadfully provoked. " https://en.wikipedia.org/wiki/The_Fellowship_(Christian_organization) https://en.wikipedia.org/wiki/The_Fellowship_(Christian_orga... https://en.wikipedia.org/wiki/Bon_Secours_Mother_and_Baby_Home https://en.wikipedia.org/wiki/Bon_Secours_Mother_and_Baby_Ho... Are you implying that divinity is free of corruption and fuckery? Because history tells us that is not true. Rather we should look fist at those who claim any sort of divinity for all the ills of the world.
      • NovemberWhiskey 3y ago
        >Is there a rule against perpetuities for gifts like there is for a lot of trusts? Permanently restricted funds in endowments are legal.
        • dmoy 3y ago
          Haha dang, well nevermind then
    • kjkjadksj 3y ago
      All the more reason to pass a tax
    • justin66 3y ago
      > This sound bite always comes up. It's condescending and erroneous to dismiss what the OP wrote as a "sound bite." I imagine most people who are comfortable with arithmetic have the same thought when they learn of the size of most Ivy League endowments. Perhaps you work in circles where factoids about Ivy League endowments are passed around as "sound bites" (where?) but it's not as if the essentials of this aren't really obvious.
      • NovemberWhiskey 3y ago
        I'm not criticizing the OP - the fact is that this does often come up as a sound bite from people who are familiar with the facts and are simply trying to foment anger with others whom they believe are not.
    • dopamean 3y ago
      If I donate 100 million to Penn for the express purposed of building a new architecture building and Penn invests that money and earns 20% on it is that 20% under the same restrictions as the principal? Also, it seems odd that if the funds are restricted to be used for a specific purpose that they university is allowed to gamble those funds in the market. Something about this doesn't add up.
      • NovemberWhiskey 3y ago
        >If I donate 100 million to Penn for the express purposed of building a new architecture building and Penn invests that money and earns 20% on it is that 20% under the same restrictions as the principal? It would depend on the facts of the gift; but my understand is that if you give money to be used for a specific purpose, it is restricted to be used for that purpose. There are also gifts that do not allow the principal to be spent; only returns on it. The gift is given in the expectation that it will be invested. Your use of "gambled in the market" is quite loaded; I don't think that most people would regard the activities of these investment officers that way.
        • bhickey 3y ago
          > I don't think that most people would regard the activities of these investment officers that way. I recall my university's chief investment officer announcing that the university could tolerate riskier investments after the endowment topped $4bn. She promptly lost nearly $800m.
          • NovemberWhiskey 3y ago
            Does this lead to a conclusion, or a disagreement with my point, or is your goal merely to present an anecdote?
    • rqtwteye 3y ago
      "Data point: Harvard's endowment has over 14,000 individual funds and the majority of them are restricted" Maybe they should stop allowing donors to put restrictions on how to use the money?
      • dgfitz 3y ago
        If you pull on that thread, the reaction would probably be: fine, not giving you any more of my money. I doubt that is a tenable option for the owner/curator(s) of the endowment fund.
        • NovemberWhiskey 3y ago
          a.k.a "we'll take your money, but only on our terms" ... that's just not even polite!
          • rqtwteye 3y ago
            That’s how it works with most donations people give. I don’t get a say how the local animal shelter uses my donations.
      • thechao 3y ago
        Malcolm Gladwell has a podcast in Revisionist History where he likens museums to dragons (hoarding art); I think that's wonderfully apt. Whenever I see institutions, like Harvard, endlessly accumulating wealth above-and-beyond what they "need", I always think of them as "another kind of dragon". I think this interacts with Pournelle's Iron Law of Bureaucracy[1]. [1] https://www.jerrypournelle.com/reports/jerryp/iron.html https://www.jerrypournelle.com/reports/jerryp/iron.html
        • NovemberWhiskey 3y ago
          BTW Gladwell is one of the people who does know better about university endowments and still leads with the anger-inducing high school arithmetic view of the situation (in his podcast, in this case). ref. https://philanthropydaily.com/what-malcolm-gladwell-gets-wrong-and-right-about-university-endowments/ https://philanthropydaily.com/what-malcolm-gladwell-gets-wro...
    • burkaman 3y ago
      Harvard's latest financial report (https://finance.harvard.edu/files/fad/files/fy23_harvard_financial_report.pdf https://finance.harvard.edu/files/fad/files/fy23_harvard_fin...) says that 30% of the endowment is flexible and 20% is explicitly allocated to "scholarships & student support". That's more than $25 billion, easily enough to eliminate tuition forever.
      • NovemberWhiskey 3y ago
        BTW Scholarships etc. are not necessarily fungible; like, if it's restricted to botany PhDs only or whatever. If you look in that report, you'll see "education revenue" - i.e. people paying to attend in the form of tuition, boarding etc - was 22% of revenues (about $1.3bn) in fiscal 2023. The endowment distributed $2.2bn (about 37% of revenues), based on a ~5% target payout rate. You can't look at that and say "that $2.2bn per year could easily pay for the $1.3bn in tuition etc" because they're already separate items on the revenue side of the book. If you reduced tuition revenue to $0, i.e. made attendance completely free, you'd have to find an additional $1.3bn a year to fund operations - that's a gigantic hole.
        • burkaman 3y ago
          I know how to fill that hole - increase the ~5% target payout rate to ~8%. Also, I'm not really suggesting they use any of their existing endowment to cover tuition. Just put a lot of it in the bank and interest alone fills the "hole".
          • NovemberWhiskey 3y ago
            >I know how to fill that hole - increase the ~5% target payout rate to ~8% That's a fantastically glib answer; do you have any reason to believe that's a sustainable rate? The endowment is supposed to last forever, remember. The usual citation for a safe withdrawal rate in retirement is 4%, for example. >Just put a lot of it in the bank and interest alone fills the "hole". The Harvard endowment is actively invested and generally substantially outperforms the interest that you'd get "in the bank" - that's the only reason that withdrawal rate of 5% is feasible.
    • psunavy03 3y ago
      It seems to be a common online misconception to read "endowment" as "slush fund."
    • tmaly 3y ago
      You would have to change the tax code to provide the incentive not to put constraints on the donation.
    • laidoffamazon 3y ago
      Sounds like a great reason to disincentivize University donations through policy. There's no reason to donate thousands of dollars to a private, wealthy university that isn't to curry favor.
    • bhickey 3y ago
      > Many/most gifts are restricted, meaning that the donors gave them to be used in specific ways That's a problem for Harvard to untangle, not the Department of Revenue.
  • strikelaserclaw 3y ago
    where does all the money generated by endowments even go?
    • NovemberWhiskey 3y ago
      Not sure if I understand the question, but assuming it's literally what you asked: it either gets spent for the purpose for which it was given, or it grows the size of the fund.
  • tmaly 3y ago
    Imagine all jobs requiring, not a high school degree, not a bachelors degree, but a PhD
• deleted 3y ago
  [deleted]
• huytersd 3y ago
  Eh I’d rather have large ivy leagues use their endowments. I like the direction they’re heading in and would want them to continue doing what they do so well.
  • laidoffamazon 3y ago
    What they do well is exclude as many people as possible while maintaining a similar level of academic standards as...UVA and Michigan and UC Berkeley, which aren't fundamentally exclusionary institutions. I struggle to see what they're doing right.
    • huytersd 3y ago
      I want my elite institutions to be exclusionary.
      • laidoffamazon 3y ago
        Cool, I want them to not exist.
        • huytersd 3y ago
          I want the exceptional people in my society to have a fast pass to success so I disagree.
          • laidoffamazon 3y ago
            I want exceptional people to be around the rest of us. Everyone benefits from integration as opposed to intellectual segregation in my opinion. However, your use of the word "exceptional" is intriguing - I want you to be very specific about what you think of "unexceptional" people - do you dislike us? Hate us? What should happen to us? Would you consider yourself to be among those exceptional people? Genuinely curious!
            • 3y ago
• boringg 3y ago
  "Massachusetts lawmakers want to change that. State legislators are considering a groundbreaking bill that would impose a 2.5 percent annual excise tax on private college and university endowments that are larger than $1 billion. The resulting $2.5 billion raised each year would be more than enough to cover the tuition of every undergraduate student currently attending public colleges and universities in the state." The chances that they would use that to cover undergraduate education is pretty low. Would 100% go towards other political causes - I have little faith in our political class doing that or using it effectively.
  • deleted 3y ago
    [deleted]
  • birdofhermes 3y ago
    They’re Ivy schools; that money was already going to the ruling class and their political causes (e.g., as Supreme Court clerkships, civil service appointments, and etc.). As tax dollars, it will at least serve the useful goal of keeping the state solvent.
    • readthenotes1 3y ago
      I believe you mean these will goal of keeping graft lucrative for state employees
    • gbacon 3y ago
      If there were a genuine threat of insolvency, they’d solve it today with budget cuts. What are the distinctions as you see them between the ruling class, their political causes, and the state?
      • laidoffamazon 3y ago
        Harvard is not the state, they're a fundamentally exclusionary institution. We should tax and contain them, not go out of our way to avoid taxing them.
  • 3y ago
• nimish 3y ago
  Colleges and universities should have to have public audits of their admissions and other processes in order to get tax breaks and federal funding. There's so little insight and oversight for orgs that vacuum up public money.
  • rqtwteye 3y ago
    Add churches and a lot of other non-profits to that list. I think all these institutions deserve a close look as to how the money is spent and whether they deserve tax breaks. When I lived in Northern VA I met quite a few non-profit higher ups that made huge salaries and did absolutely nothing for the public good.
• fiprofessor 3y ago
  This seems like the same article, but without the need to subscribe to read the whole article: https://jacobin.com/2024/02/tax-ivy-league-endowments-public-university-massachusetts https://jacobin.com/2024/02/tax-ivy-league-endowments-public... > Based on the size of these “rainy-day funds” alone, the two universities, with a combined student body of 37,000, have enough wealth to rival Ghana, with a population of 35 million. This is not correct at all, as the author is comparing a stock to a flow. The citation for this is a link to the World Bank's listing of GDP by nation. Ghana had a GDP in 2022 of $73 billion, but that is not Ghana's collective wealth. Not a great start to an opinion piece on a huge tax policy proposal: the proposed projected figure of $2.5 billion would be the equivalent to 5% of Massachusetts's current annual tax revenues.
  • NovemberWhiskey 3y ago
    Virtually all non-specialist reporting that touches on economics or finance is littered with grievous errors, in my experience, the more so if it highly partisan.
    • SebFender 3y ago
      With time you'll notice in most complex situations and subjects - many articles are of the wall in poor details and erroneous information - but especially on background. I regularly read these with one eye closed...
    • gbacon 3y ago
      > Founder and editor-in-chief of The Lever, David is also an Oscar-nominated writer and worked as Bernie Sanders' presidential campaign speechwriter.
      • joenot443 3y ago
        In this case it was a staff writer, by the looks of it: > Helen is a Colorado-based reporter focused on health care. She has been published in KFF Health News, Scientific American, the New York Times, and more. Doesn't make it any better. It's wild you can have an MS and mix up wealth and GDP.
• chasil 3y ago
  Should this happen, it will end up driving the tuition higher as the institution passes the costs down to customers (students, perhaps also research grants). The net effect will be to push customers to lower-cost competitors, limiting the student body to those only highly-monied or with sufficient academic performance to obtain larger subsidies (grants/loans). This might also reduce the level of academic scholarship. The net effect would be good for competition, on first glance.
  • krastanov 3y ago
    Many undergraduates and most graduate students do not pay tuition at Ivies, rather it gets covered by financial aid or research stipends. And whether you get admitted is decided independently from whether you get financial aid. Of course, being rich makes it easier to have the earlier education and CV necessary to get admitted, but that issue is unrelated.
    • DinaCoder99 3y ago
      > Of course, being rich makes it easier to have the earlier education and CV necessary to get admitted, but that issue is unrelated Not to mention you're far more likely to be considered a legacy student, which gives you a huge leg up.
• deleted 3y ago
  [deleted]
• gojomo 3y ago
  Would be hilarious to see Harvard & MIT relocate (in part or in full) to a friendlier tax jurisdiction – New Hampshire? SBF's Bahamas? – to avoid or lessen this tax.
  • yieldcrv 3y ago
    They absolutely should, states are in competition with other states and they should be reminded about why the symbioses with those tax exempt entities exists. Massachusetts has identified a problem, its too bad that they also have to be tasked with identifying a solution. They really shouldn't be the same people but our social structure doesn't really accommodate that. And to top it off, the classic “fair share” quip when nobody can reach consensus on a definition. Massachusetts is swinging far harder than its relevancy.
  • laidoffamazon 3y ago
    Personally I'd see that as a net benefit - if they want to leave, great! It's an even more beneficial second order effect than billionaires and millionaires moving to avoid taxes.
  • protastus 3y ago
    Their endowments are already managed like hedge funds, so this would be entirely consistent with their playbook.
• laidoffamazon 3y ago
  As a Massachusetts resident, I'm strongly supportive of taxing the shit out of these freeloaders - it's beyond time we punish these people for what they've done to the rest of us. Unfortunately, it's true that there's a big emotional reaction to attacking these big institutions - similar to the "temporarily embarrassed millionaires" phenomeon a lot of people seem to think they or their descendents are "temporarily embarrassed HYPSM+ admits"
  • singleshot_ 3y ago
    A large part of what makes Massachusetts amazing is the fact so many people are so well educated. I wouldn’t really call Harvard a freeloader so much as a three hundred year old indispensable part of the community.
    • laidoffamazon 3y ago
      We aren't highly educated because of Harvard and MIT, which do not make up the most of our college educated citizens
      • singleshot_ 3y ago
        They don’t make up most of our educated citizens, but they do account for many of our most educated citizens. Fwiw, wishing for the power to punish people for being highly educated is not a good look.
        • laidoffamazon 3y ago
          I don't understand this distinction. A PhD from UMass Amherst in CS is also "highly educated", as an example. But I do think we should punish the cognitive elites from the ivory towers (aka not UMass Amherst) who look down on people like me and consider me to be an underhuman.
• jjmarr 3y ago
  2.5% a year on the total endowment of a university is higher than the wealth taxes of virtually every country in the world that implements them. This wouldn't be treating them the same as trillion dollar corporations, this would be treating them worse. The original Jacobin article says: > And unlike the federal tax, this tax would be on the schools’ total endowments, not just the income they make from it every year. I think it's unlikely this bill will pass because if it does, it would be tax-advantaged to operate a for-profit corporation for the sole purpose of making yearly donations to a school than just giving the money to the school directly. 21% corporate federal income tax + 8% massachusetts state tax of a 5% yearly return is effectively a 1.45% tax on wealth which is a better rate than schools get (there is no corporate wealth tax in America). Even if one agrees with taxing universities the same as any business, this particular implementation treats private universities worse than businesses.
  • laidoffamazon 3y ago
    I think it's perfectly reasonable to treat them worse, they're a more malign influence than most trillion dollar corporations on society. Segregating by intellect and cognitive ability has been a disaster for society - I think it's a big reason for why social trust has been declining in America for the past 60+ years as elite institutions become more focused on who "deserves" admission because of "merit" rather than who their parents are (which means now it's just fuzzy proxy for parental preparedness). It's beyond time we transfer wealth from Harvard and MIT to UMass Boston and similar schools that benefit large numbers of Massachusetts residents rather than the few.
    • Geisterde 3y ago
      Is there anything more to your point than "I dont like them so we should steal your money and give it to someone we like more"? I am inclined to agree, these universities are trash, but you not liking them doesnt justify stealing from them.
• deleted 3y ago
  [deleted]
• paxys 3y ago
  Seems like Harvard will have an easier time with taxes if it just rebrands itself as a private for-profit corporation.
• Ajay-p 3y ago
  Harvard's endowment of $35 BILLION. Yearly tuition is $54,000 for a combined cost, without discounts, scholarships, etc. of $216,000 give or take for a four-year undergraduate degree. Harvard's endowment could give full rides to 162,037 students. The fact they don't and instead sit on this mountain of cash is a problem IMO. I understand part of that is to insure the schools longevity but how many billions do you really need in this regard? I think some number of those endowments should be taxed but I would prefer to see Harvard giving out full rides to many, many more people, or heavily invested in community colleges.
• naveen99 3y ago
  Aren’t they already required to spend 4% of the endowment for the non profit mission ?
• Scot12345 3y ago
  [dead]