It is disturbing that the author so lightly morphs a tax exemption into a taxpayer subsidy. As if the natural state of things is for the government to tax everything and whatever it doesn't is being subsidized.
That's how most economists view a tax exemption. An exemption means that ordinarily, this entity would be taxed, but because it is deemed to be special in some way, they get an exemption. From the perspective of an economist, that's money the government is giving up, which is no different than paying that money out.
No kidding. "And since bestowing tax exemptions is the same as spending cash from the government’s perspective". I physically shuddered as I read that.
The authors entire argument falls apart right there.
Furthermore they focus on per student numbers when a lot of the work done at private universities is graduate education and research work. Comparing based solely on the tax advantage / # of undergrads doesn't capture the difference in what the schools do.
This was my biggest problem with the article, he also goes on to compare direct funding for public university vs tax breaks on the private university, but completely ignores that public universities ALSO have endowments which are also not taxed, and should also be factored into the equation. Obviously Harvard's still shadows everyone else, but he isn't comparing apples to apples.
For instance, the school with the second largest endowment? University of Texas $25 billion.
In the context of competition, tax exemptions are de facto subsidies. If my company has an ETR of 10% and yours would be the same if it weren't for the 50% reduction you got, you can underprice me by a few points and still have a higher profit all other things being equal.
People give these elite colleges and universities a hard time, but I think it is mostly sensational stories with no meat. Do you know how many US schools are need blind and meet full need for all students? 6. [1]
I also have no clue where the story about these schools being for rich kids came from. When my wife went to Princeton a few years back it was one of the cheapest options for her! Schools all base need on the same FASA form, but then these "expensive elite schools" will do things like cover the student portion of the aid with a grant instead of loans [2]. This makes their financial aid package much better than at most schools.
Suppose you were to start "a hedge fund with a university attached to it", in order to use the university's non-profit status to minimize paying taxes. What would that look like? Would you set up need blind admission, in order to provide better cover to justify the hedge fund?
The article points out that the non-profit status means that "Princeton received $105,000 in tax benefits per student. Rutgers, New Jersey’s flagship public university, got just $12,300 per student in public funding." and "Among the 60 schools Schneider and Klor de Alva analyzed, private universities with large endowments averaged $41,000 in tax subsidies, compared with $15,300 in direct funding for public flagships, $6,700 for regional state colleges, and $5,100 for community colleges."
Perhaps the extra $90K/year effective subsidy per Princeton student explains why Princeton was one of the cheapest options?
Harvard waives fees altogether for families making less than $65,000. More than 60% of US households have income less than that+, yet only 20% of Harvard's undergraduate class pays no fees. From this we reasonably say that Harvard is mostly a school for rich kids, despite its generosity to those non-rich kids it lets in. In this way it is similar to elite private high schools in NYC or boarding schools in New England (both of which still send many students).
+This in not quite the correct referent class, as you'd want households with an 18 year old rather than all households. Still I'd be suprised if it was too far off.
The number 6 you mention is schools that are need blind and meet full need for both US and International Students.
Most well-known universities are need blind and meet full need for US students, and partially support international students. Which I think makes perfect sense.
I was in the same boat. It was MUCH cheaper (> $20K/yr cheaper) for me to go to an Ivy school than it was for me to go to any of my other options (including an in-state school that people considered to be the 'cheap' option).
When public education needs more money, taxing private education to support them doesn't help education in the society as a whole.
High education should not be taxed, period. It's investment towards more tax income in 3-4 years. If you need to tax something to support some providers of education, it's not other providers of eduction.
One issue here is using tax policy to incentivize investment in higher education by penalizing institutions for NOT spending huge endowment windfalls on higher ed.
You don’t tax Harvard the school like you tax a corporation. You tax Harvard the fund, if and only if it’s not existing primarily to support Harvard the school.
1. If you're going to tax universities, then you need to tax churches too. Good luck.
2. If you're going to tax non-profits, then why have non-profits?
3. Do we really want to penalize fiscally responsible organizations when even governments are going bankrupt? What values are we trying to support here?
You don't have to treat universities and churches the same., the tax code specifically defines which organizations are tax exempt. Churches and universities are "501(c)(3) organizations", i.e. "Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office."
You can just amend that law to delete "educational", which would remove the tax exemption for universities, but keep it for churches.
It is already the case that there are organizations which don't pay out dividends to owners (so they are "non-profit"), but which are not tax-exempt. One example which has been discussed on Hacker News is foundations set up to accept donations in order to fund development of open-source software.
"If you're going to tax universities, then you need to tax churches too. Good luck."
Right. There are some very wealthy churches. In the United States alone, the Catholic Church has an operating budget of $170 billion. That's bigger than Apple.
I don't have any objections to the Harvard endowment being so large. What this article doesn't mention, however, is that there is a growing trend of corporations and the wealthy buying questionable research in order to achieve political/business goals, more and more educational institutions are becoming depended on this kind of income. This sort of thing should probably be taxed (if it's legal to begin with). (This is not specific to Harvard, Harvard is probably least guilty of this, actually).
This is already subsumed by Betteridge's Law of Headlines anyway, but I'm tempted to propose a new "Internet law" that says "For any question that starts with 'Is it time to tax ...' the answer is always 'No'".
It's interesting to see a group of people who self-identify as being part of the hacker community - through their presence here - tacitly endorse violence to achieve their ends. And make no mistake about it, taxation is violence.
Don't believe me? Try not paying "your" taxes sometime, and wait and see how long until the State sends men with guns to arrest you. And then try defending yourself against these men with guns.
We can do better than this. We should be promoting non-violent self-government, not embracing a system which is completely predicated on the use of violent force to ensure compliance.
[+] [-] mhb|10 years ago|reply
[+] [-] scott_s|10 years ago|reply
[+] [-] mikeash|10 years ago|reply
[+] [-] rubidium|10 years ago|reply
The authors entire argument falls apart right there.
[+] [-] chrisBob|10 years ago|reply
[+] [-] ovulator|10 years ago|reply
For instance, the school with the second largest endowment? University of Texas $25 billion.
[+] [-] jedrek|10 years ago|reply
[+] [-] hackuser|10 years ago|reply
Why shouldn't everyone pay their share? If I'm paying my share and you aren't paying yours, I'm subsidizing your government services.
[+] [-] chrisBob|10 years ago|reply
I also have no clue where the story about these schools being for rich kids came from. When my wife went to Princeton a few years back it was one of the cheapest options for her! Schools all base need on the same FASA form, but then these "expensive elite schools" will do things like cover the student portion of the aid with a grant instead of loans [2]. This makes their financial aid package much better than at most schools.
[1] https://en.wikipedia.org/wiki/Need-blind_admission
[2] https://admission.princeton.edu/financialaid
[+] [-] dalke|10 years ago|reply
Suppose you were to start "a hedge fund with a university attached to it", in order to use the university's non-profit status to minimize paying taxes. What would that look like? Would you set up need blind admission, in order to provide better cover to justify the hedge fund?
The article points out that the non-profit status means that "Princeton received $105,000 in tax benefits per student. Rutgers, New Jersey’s flagship public university, got just $12,300 per student in public funding." and "Among the 60 schools Schneider and Klor de Alva analyzed, private universities with large endowments averaged $41,000 in tax subsidies, compared with $15,300 in direct funding for public flagships, $6,700 for regional state colleges, and $5,100 for community colleges."
Perhaps the extra $90K/year effective subsidy per Princeton student explains why Princeton was one of the cheapest options?
[+] [-] bradleyjg|10 years ago|reply
+This in not quite the correct referent class, as you'd want households with an 18 year old rather than all households. Still I'd be suprised if it was too far off.
[+] [-] adminprof|10 years ago|reply
Most well-known universities are need blind and meet full need for US students, and partially support international students. Which I think makes perfect sense.
[+] [-] Nrsolis|10 years ago|reply
I'd rather see us start to question the "non-profit" status of lots of hospitals that pay their management some seriously hefty salaries.
http://www.modernhealthcare.com/article/20140809/MAGAZINE/30...
[+] [-] WYSIMOLWYG|10 years ago|reply
[+] [-] kailuowang|10 years ago|reply
High education should not be taxed, period. It's investment towards more tax income in 3-4 years. If you need to tax something to support some providers of education, it's not other providers of eduction.
[+] [-] jhugg|10 years ago|reply
You don’t tax Harvard the school like you tax a corporation. You tax Harvard the fund, if and only if it’s not existing primarily to support Harvard the school.
Sitting on money doesn’t help the economy much.
[+] [-] Quanticles|10 years ago|reply
2. If you're going to tax non-profits, then why have non-profits?
3. Do we really want to penalize fiscally responsible organizations when even governments are going bankrupt? What values are we trying to support here?
[+] [-] vilhelm_s|10 years ago|reply
You can just amend that law to delete "educational", which would remove the tax exemption for universities, but keep it for churches.
It is already the case that there are organizations which don't pay out dividends to owners (so they are "non-profit"), but which are not tax-exempt. One example which has been discussed on Hacker News is foundations set up to accept donations in order to fund development of open-source software.
[+] [-] Animats|10 years ago|reply
Right. There are some very wealthy churches. In the United States alone, the Catholic Church has an operating budget of $170 billion. That's bigger than Apple.
[+] [-] unknown|10 years ago|reply
[deleted]
[+] [-] gtrubetskoy|10 years ago|reply
[+] [-] adultSwim|10 years ago|reply
[+] [-] mindcrime|10 years ago|reply
[+] [-] mindcrime|10 years ago|reply
Don't believe me? Try not paying "your" taxes sometime, and wait and see how long until the State sends men with guns to arrest you. And then try defending yourself against these men with guns.
We can do better than this. We should be promoting non-violent self-government, not embracing a system which is completely predicated on the use of violent force to ensure compliance.