Friday, May 9, 2008
MA College Endowment Tax Debate Heats up
So Rep. Paul Kujawski of Webster, MA, sponsored an amendment to the House budget for studying whether university endowments worth over $1 billion in the state should be slapped with a 2.5% tax. This has a created a little storm in academic circles in MA, with every two bit economist and every major media outlet coming out against the proposal.
"When is a nonprofit not a nonprofit because of the wealth they are acquiring?" said Representative Paul Kujawski, a Democrat from Webster and chief backer of the legislation.
"It's mind boggling that one entity not paying taxes has $34 billion. How do you justify that?" said Kujawski, who serves on the influential House Ways and Means Committee. "When people can't afford to live. How do you justify not taxing them?" - Lawmakers target $1b endowments, Peter Schworm and Matt Viser, Boston Globe, May 8, 2008
But before we go into who is saying what, here's a bit of a backgrounder. This concept of taxing endowments actually has been bandied about in Washington DC ever since late last year, when endowments around the nation announced their blockbuster annual endowment investment performance reports. The ostentatious reason being given for taxing endowments is to lower tuition fees. It seems if the endowments spent 1% of their money on financial aid, they could altogether eliminate undergraduate tuition fees. The point was that the tax-exempt status of the endowments should be tied to lower tuition fees. Whatever the merits of this proposal, as usually happens in politics, the money goes in, but nothing comes out. So, this proposal being studied by the MA House would simply tax the endowments, period.
All right, let's down to the vicious reaction to the endowment tax by a horde of angry Harvard economists and sundry interested parties.
The Harvard Crimson has an article titled 'The Tax Stops Here', which should be sign enough of which way the wind is blowing in Harvard. This sort of amendment would have given life to the practice of the state penalizing monetarily successful universities—namely Harvard—for being just that. Only eight schools in Massachusetts have endowments over $1 billion: Harvard, MIT, Williams, Boston College, Amherst, Wellesley, Tufts, and Boston University. But with a $34.9 billion endowment, Harvard would see the greatest payout by far. The university with the next-largest endowment, MIT, has $9.98 billion.
Harvard's premier econblogger goes one step further and suggests that its time for Harvard to move and start a second campus outside the state, transfer much of the endowment to the new campus and support the old one by selling off land in Massachusetts. The good Professor seems a bit miffed...
The Boston Globe editorial page suggest its a good way - To strangle the economy. Harvard alone, with its endowment of $34 billion, would be on the hook for $840 million a year. But a tax of this magnitude on the state's universities and colleges would be economic suicide....The Legislature should abandon the endowment tax - an ill-conceived money grab that ignores how vital higher education is to the local economy.
The most unbiased article I read on this issue comes from InsideHigherEd.com, which contains reactions from both sides of the debate.
“I think that legislators, and I don’t think Massachusetts is unique in this, are simply frustrated by the pressures they’re under to solve lots of problems with decreasing revenues” from property taxes and other sources, said Richard Doherty, executive director of the Association of Independent Colleges and Universities of Massachusetts, which represents the state’s private colleges. As they are “turning over rocks and stones looking for money,” as Robert Brown, the president of Boston University, put it, it’s perhaps not surprising that their attention was drawn to college endowments, since “the size of one of our colleges’ endowment seems to attract a fair amount of attention,” Doherty said, referring to Harvard. So is the idea, he was asked, that maybe there’s more money to be gotten?
“Absolutely,” Kujawski said. “We were saying the first billion isn’t going to be touched. So maybe more of these schools might provide more funds for their students, to stay under the billion. A billion dollars is a lot of money.” - Doug Lederman, InsideHigherEd.com, May 1, 2008
The article additionally focuses on the point that the sponsors of the amendment were merely trying to bring attention to the issue, and use it as a kind of motivator to get the endowments to spend more, rather than actually follow through and implement the tax. It should be noted that after the endowments came under Washington's radar last year, the Universities, led by Harvard, with a lot more following suit, increased financial aid for middle-class students. So, pressure does work. Only question is, will Massachusett's lawmakers know when to stop?
"When is a nonprofit not a nonprofit because of the wealth they are acquiring?" said Representative Paul Kujawski, a Democrat from Webster and chief backer of the legislation.
"It's mind boggling that one entity not paying taxes has $34 billion. How do you justify that?" said Kujawski, who serves on the influential House Ways and Means Committee. "When people can't afford to live. How do you justify not taxing them?" - Lawmakers target $1b endowments, Peter Schworm and Matt Viser, Boston Globe, May 8, 2008
But before we go into who is saying what, here's a bit of a backgrounder. This concept of taxing endowments actually has been bandied about in Washington DC ever since late last year, when endowments around the nation announced their blockbuster annual endowment investment performance reports. The ostentatious reason being given for taxing endowments is to lower tuition fees. It seems if the endowments spent 1% of their money on financial aid, they could altogether eliminate undergraduate tuition fees. The point was that the tax-exempt status of the endowments should be tied to lower tuition fees. Whatever the merits of this proposal, as usually happens in politics, the money goes in, but nothing comes out. So, this proposal being studied by the MA House would simply tax the endowments, period.
All right, let's down to the vicious reaction to the endowment tax by a horde of angry Harvard economists and sundry interested parties.
The Harvard Crimson has an article titled 'The Tax Stops Here', which should be sign enough of which way the wind is blowing in Harvard. This sort of amendment would have given life to the practice of the state penalizing monetarily successful universities—namely Harvard—for being just that. Only eight schools in Massachusetts have endowments over $1 billion: Harvard, MIT, Williams, Boston College, Amherst, Wellesley, Tufts, and Boston University. But with a $34.9 billion endowment, Harvard would see the greatest payout by far. The university with the next-largest endowment, MIT, has $9.98 billion.
Harvard's premier econblogger goes one step further and suggests that its time for Harvard to move and start a second campus outside the state, transfer much of the endowment to the new campus and support the old one by selling off land in Massachusetts. The good Professor seems a bit miffed...
The Boston Globe editorial page suggest its a good way - To strangle the economy. Harvard alone, with its endowment of $34 billion, would be on the hook for $840 million a year. But a tax of this magnitude on the state's universities and colleges would be economic suicide....The Legislature should abandon the endowment tax - an ill-conceived money grab that ignores how vital higher education is to the local economy.
The most unbiased article I read on this issue comes from InsideHigherEd.com, which contains reactions from both sides of the debate.
“I think that legislators, and I don’t think Massachusetts is unique in this, are simply frustrated by the pressures they’re under to solve lots of problems with decreasing revenues” from property taxes and other sources, said Richard Doherty, executive director of the Association of Independent Colleges and Universities of Massachusetts, which represents the state’s private colleges. As they are “turning over rocks and stones looking for money,” as Robert Brown, the president of Boston University, put it, it’s perhaps not surprising that their attention was drawn to college endowments, since “the size of one of our colleges’ endowment seems to attract a fair amount of attention,” Doherty said, referring to Harvard. So is the idea, he was asked, that maybe there’s more money to be gotten?
“Absolutely,” Kujawski said. “We were saying the first billion isn’t going to be touched. So maybe more of these schools might provide more funds for their students, to stay under the billion. A billion dollars is a lot of money.” - Doug Lederman, InsideHigherEd.com, May 1, 2008
The article additionally focuses on the point that the sponsors of the amendment were merely trying to bring attention to the issue, and use it as a kind of motivator to get the endowments to spend more, rather than actually follow through and implement the tax. It should be noted that after the endowments came under Washington's radar last year, the Universities, led by Harvard, with a lot more following suit, increased financial aid for middle-class students. So, pressure does work. Only question is, will Massachusett's lawmakers know when to stop?
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