Taxes

Republicans Craft Tax Hike for Harvard and Yale

The GOP should be thinking up ways to cut taxes, not raise them.

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House Republicans are plotting a $1.7 billion tax increase aimed at America's most elite colleges and universities.

The tax increase is buried on page 879 of Rep. Dave Camp's (R-Mich.) 979-page tax reform bill. The bill is considered unlikely to become law, but Camp is chairman of the powerful, tax-writing Ways and Means Committee, and his draft legislation is likely to provide a road map for tax reformers in years ahead.

The tax, as outlined in Section 5206 of the legislation, is called an "excise tax based on investment income of private colleges and universities." It begins, "there is hereby imposed on each applicable institution for the taxable year an excise tax equal to 1 percent of the net investment income of such institution for the taxable year."

The draft legislation goes on to make clear that the proposed new tax would apply only to private colleges and universities, not state colleges or universities. So Harvard's $32 billion endowment would be fair game for the tax collector, but the University of Texas's $20 billion endowment would remain tax exempt. The proposed tax would also only applies to the richest of the private colleges — those with endowments of at least $100,000 per full time student. That would exempt private colleges such as Georgetown or George Washington University, which are reportedly not as well endowed on a per student basis.

Even with those carve-outs, however, the tax adds up. The Joint Committee on Taxation estimates that the tax would raise $1.7 billion over the decade from 2014 to 2023. Harvard alone would pay roughly $30 million in tax for a single year in which a $30 billion endowment earned a ten percent return. Yale would pay a $20 million federal tax for a year in which its roughly $20 billion endowment earned a 10 percent return.

The colleges, naturally, don't like the idea. The vice president for federal relations at the Association of American Universities, M. Matthew Owens, told InsideHigherEd.com that the provisions were "concerning" and "troubling."

Camp, for his part, makes the case that he's just giving the college endowments the same treatment as big private foundations such as the Ford or Gates Foundations. Those foundations have to pay a two percent excise tax on their endowment income that can be reduced to one percent if they make grants above a certain minimum threshold.

Even so, it's easy to think of motives here beyond policy consistency. If policy consistency were the only motive, after all, Republicans would be trying to reduce taxes rather than dreaming up new ones.

Might it have just something to do with the overwhelmingly Democratic-leaning party registration and political contributions on these sorts of college campuses, or the fact that they exist largely in Democrat-leaning states? Camp represents Michigan and is a graduate of Albion College and of the University of San Diego School of Law.

The idea of a tax on university endowments has attracted support from a variety of somewhat surprising quarters. A senior fellow at the center-right Manhattan Institute, James Manzi, has written supportively about the proposal for National Review Online: "Viewed purely in terms of economics, Harvard is really a $40 billion tax-free hedge fund with a very large marketing and PR arm called Harvard University that has the job of raising the investment capital and protecting the fund's preferential tax treatment." The left-leaning Reuters blogger Felix Salmon has also written positively about the idea.

I'd prefer the politicians in Washington spend their time figuring out taxes to repeal, rather than inventing new ones to impose. I also cringe at the idea of a tax designed to punish a party's political opponents. But for conservatives who are tired of hearing President Obama drone on about how he just wants to "ask" the "rich" to pay a little more to help fund food stamps, ObamaCare, universal pre-school, or whatever the under-attack help-the-poor program of the day is, one can understand the attractiveness of coming back with a proposal to tax Harvard, Yale, and Princeton.

With his bill, Camp is making the point that the higher education sector has its own one percent, and turnabout is fair play. Nice endowment you've got there, the Republicans seem to be saying: It'd be too bad if we have to redistribute it.

NEXT: Andrew W.K's Personal Stimulus Plan.: Party Like Your Whole World Depends on It!

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  1. Don’t want it to pass, but I desperately want to hear the excuses on the Left for why this is the one tax that is actually bad.

    1. Why don’t you want it to pass? What’s wrong with taxing people that love taxes? It’s just that much less you have to pay.

      1. “It’s just that much less you have to pay.”
        No. The Republicans will find a way to spend all they get from Harvard, Yale and the College of U All too.
        You will not be paying less.

      2. Your collectivism is showing, or at the very least, your lack of principle. Not all people who benefit, trade, or support Ivy Leagues schools are advocates of big government. Anyway, encroaching on the individual rights (as all new taxes do) of even an advocate of big government, encroaches on all of our rights.

        Camp is a tool for big government, and morally worse than any dem because he is in the party that is suppose to be against big government. Hypocrite.

        1. Not all people who benefit, trade, or support Ivy Leagues schools are advocates of big government.

          Not in the perfectly literal sense, but it’s a suitably high number that “all” is more accurate than “some” or even “most”.

          Also, I’m pretty sure that was snark.

          1. Hey PM, how’s it going. I realize it is snark, but I thought someone needed to point out the principle involved. Advocating principle is sometimes too rare on this site.

            1. Thank god you’re here to set everyone straight!

              1. Gotta a problem with principles?

                1. Is “principle” your word of the day? Find it in a comic book?

                  1. Glad you asked.

                    Principles are the words for a life time. I found mine in 62 years of living.

                    Where did you find your guidelines for living. Under a rock?

                    Gee whiz, bro.

                    1. Principles are just fine, bro. But behaving like you
                      have been sent from on high is just annoying.
                      Especially when all you do is repeat yourself.

                    2. I’ll try and work on that!

                      Later.

                    3. Hey, this was productive!

                    4. Say hi, to tulpa!

                    5. The best reason to oppose this tax is not that ivy league schools arent entitled centers of indoctrination.

                      The best reason to oppose this tax is that it will give the govt more money to work against us with.

        2. I don’t care wehether everyone who has contact with the Ivies is a statist.

          I’m pretty sure the schools themselves are, though. And they’re the ones to be taxed. So its all good.

          1. No it is bad. A principle is a principle. Do you think people who speak against freedom of speech should be locked up for their speech. I am guessing you don’t. It is the same principle isn’t it?

          2. No. The use of the tax system to punish or promote what you agree or disagree with got us this mess. The tax code should only be for the funds necessary to run a constitutionally mandated government. Period. No playing favorites, no punishing enemies.

            1. This too.

            2. I have news for you they’re never going to stop.
              The only thing that might have an effect is pain.

              1. You like pain, Mr. Madman? Or inflicting it? Or both. Maybe you are a swell person under all that internet tough guy talk. Maybe not.

                Nihilism gets you no where, dude.

                No.

                Where.

                1. Who’s a nihilist? Who’s tough? I merely wish
                  to destroy my enemies. But thank you for the intended compliment.

                  1. Destroy your enemies? How? By adopting their vices as your own?

                    1. Antimatter.

                    2. Let me guess, you think we could have wone WWII and the Cold War by eliminating all our weapons and demonstrating brotherly love to the totalitarians, right?

                      In the real world you sometimes have to fight fire with fire and using the tax code to destroy the Ivies would be a major advance for liberty.

            3. agreed

        3. What if your principle is a belief in the free market and that it can only operate efficiently if everyone is playing by the same rules?

          Allowing exemptions to certain people or organizations distorts the free market, yes? This is a bad thing, yes?

          I’m torn. Taxes suck, but way less taxes for you and more for me suck even more.

          1. Hey PaulW. Don’t be torn. Be against taxes. We don’t have a free market anyway. The injustices abound. It is not going to make things better by going the wrong direction with even more taxes.

            Camp is wrong, way wrong. It could easily backfire.

            1. Ehhhh, yeah, I guess they could use their time to fight for less taxes elsewhere rather than more taxes for someone who wasn’t paying any. I can get behind that.

              It definitely isn’t going to make me boo the Repubs too loudly, though.

            2. We are over 17 Trillion in debt with many times that if you consider promises.

              Even if we magically got a libertarian prez, senate ,congress and court, you’d still have the debt. You’d still have the promises.

              Taxes are needed to eliminate the debt. It sucks, but our parents and we and our kids all voted these spend thrifts in, and now have to pay the piper.

              I wish we could make Liberals pay more, but reluctantly, I have to go with some form of fair tax system until we pay the debt and can eliminate income taxes.

      3. That’s never how that works.

        I mean, fuck, they’re already spending more money than the pull in with taxation. What would make you think pulling in more tax money from some other source would reduce the amount they siphon from you or me?

    2. Or the Left will vote for it and then go “we exepect universities to pay an excise tax on investment accounts. how can we not expect other investors to pay their fair share with a similar tax?”

      This is another case of the GOP trying to be too clever by half.

      1. Too unprincipled by half. You are right, though, they will undercut any future arguments against raising taxes by initiating this one.

        They are killing us, these repubs.

        1. Doublepluss unprincipled!

  2. Years ago, I was wondering why these universities keep increasing their endowment funds and have stopped using the funds for scholarships, etc. Now student loans make up the difference in high tuition increases, but back when I was in college, before student loans, these endowment funds were used to help with tuition. So, yeah, perhaps it’s time to start putting an excise tax on endowment funds that are just growing for the sake of growing and acting as a tax dodge through the use of charitable trusts? Force these universities to actually use that money to help students with tuition, room and board, books, etc. It should apply across the board to all schools — not just private schools.

    1. Not only that, but you look at schools (whether public or private) and real estate they own – Cambridge for example and now the Boston schools too – and the tax shelters they get, it is hurting cities for tax revenue. What happens is that they make up for it on residential and for profits. I would love to see Reason research and write about that. As much as I hate taxing anyone, I am sick of the cronyism that favors our higher-ed institutions.

      1. Yeah, that’s right. Violate some more people’s rights. That’s how you will win the day.

        Listen, to argue for freedom of speech you have to defend the right of speech of even those who advocate against freedom of speech. Same issue here. It is wrong to start new taxes against anyone. You must be against taxes for even people who advocate more taxes. Anyway, you don’t know that all people associated with American universities advocate more taxes. Many don’t. It is a collectivist mind set to think that they do. Are you a collectivist?

        1. Property taxes and excise taxes on endowment income aren’t new taxes though. Non-profits were given exemptions from those already-existing taxes that similarly situated people and institutions have to pay. I do agree that the better solution to address the inequity of the situation is to do away with the oppressive taxes in the first place though.

          1. PM–

            Let me make sure I understand. You agree with me on something?

            Wow! Time for another sip on the ole martini. Cheer’s to you, PM.

            1. You’d probably find we agreed quite a bit on a very good many things, your constant Objectivist moralizing about the religious notwithstanding. You’d even find we probably don’t disagree all that much about the fundamental nature of religion either; I’m just not of the opinion that non-theism is fundamental to the NAP.

        2. Not everyone is a pacifist.

        3. Definitely not one. Taxes are there. My preference is to give me, you, and others, the same treatment as these ‘non-profits’ (wait does that mean I am advocating Collectivism, since I want NO ONE to pay taxes?)
          But since that is not happening, then they shouldn’t get it. While I despise Collectivism, I still hate Cronyism.

  3. let’s get these guys on the tax rolls so they’ll have some skin in the game when they talk about the tax rates.

  4. This really misses the mark. Or maybe, it hits the intended mark but with the wrong principal. If legislators are wishing to curb college costs, it should start with the unlimited demand for a college education that gov has long promoted. But the government wants to keep ownership of the youth by dangling student loans in front of students, then holding it over their heads after graduation.

    But attacking political opponents via the tax code is immoral no matter who does it.

    1. Sorry, *principle. Orrr, pun intended?

    2. I sometimes wonder if the writers at Reason do not just put these articles out here to get us to hone our debate skills and come to logical conclusions.

      It is a good thing, I guess, we can’t be too much of an echo chamber.

    3. Yep. Taxes are always immoral. Legalized theft.

      1. Legalized theft is an oxymoron. Does that make it a contradiction? No, but it is also a contradiction.

        1. Who wants to bet Tony has used the term “legalized murder” at least twice today though?

          1. theft is a moral crime and legalism is a different arena.

            tony equates morality to govt power, and it should be called out anytime it rears its immoral head.

            Adolf Hitler was a dictator. In tony’s world that makes his personage the embodiment of morality. quite sick. i think that is the kind of shit that kim jong ill was spreading.

            1. theft is a moral crime and legalism is a different arena.

              A million times, this.

  5. The colleges, naturally, don’t like the idea.

    Which would be ironic if they possessed even a modicum of self awareness.

    1. Do they pay taxes when they take it out of the endowment?

      1. Good question. It probably depends on the purpose for which it is used. Salaries and bonuses, the recipients would pay taxes. For activities related to its non-profit mission, probably not.

        1. My understanding is that they use most endowment money for non profit purposes, like scholarships and financing expansions/upgrades to facilities.

  6. This law is a decent start but is way too timid.

    My solution is to eliminate the non-profit designation entirely. There’s no rational reason to tax one entity’s retained income but not another’s. And doing so provides a long term advantage to the non taxed entity and the people that control it.

    1. You’re right, but the even better solution would be to do away with corporate taxes altogether.

      Even at that though, the tax here is an excise tax, not the income tax.

  7. “The colleges, naturally, don’t like the idea”

    Of course they don’t. This is a classic case of:

    Socialism is for the people, not the socialist.

    1. true but if the GOP is for lowering taxes it needs to be consistent. This means lowering taxes for socialists libertarians and conservatives alike.
      If not, then they aren’t a whole lot better than the IRS targeting libertarian/conservative groups for their political beliefs.

  8. “Georgetown or George Washington University, which are reportedly not as well endowed”

    Well that sucks.

    1. They can’t say that about George Washington! When he took off his boot, you could see the dicks growing of his foot!

  9. $1.7 billion over ten years? That’s pretty much a rounding error in the federal budget. But that money could mean thousands of kids won’t be able to receive financial help to attend these schools….which may have a longer term and greater impact on the budget.

  10. “First they came for the communists, and I didn’t speak up because I wasn’t a communist…”

  11. “The Joint Committee on Taxation estimates that the tax would raise $1.7 billion over the decade from 2014 to 2023. ”
    So no significant money then.

  12. stupid – GOP needs to be consistent on taxes

  13. stupid – GOP needs to be consistent on taxes

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