Ending the Ivy League's Tax Dodge
levernews.com
levernews.com
> 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.
> 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.
https://en.wikipedia.org/wiki/Michael_Crichton#Gell-Mann_amn...
One of my favorites is something like "the richest 10 people have more net worth than the bottom 40% of Americans SUMMED". Well the bottom 40% of Americans are in debt, so if you have $1, the above statement is true for you too!
The sleight-of-hand happens with the word "net worth" which usually means financial or in-bank net worth. For most of the population, their actual worth is stored in their human capital. If you account for that, I assure you the top 10 or even 100 richest Americans do not have greater worth than 150 million bottom Americans (to proxy this, look at income).
A easier way to visualize this is to consider the statement "Joe Biden owns more cars (3) than the bottom 30% of the US SUMMED (0)". Cars is such a weird dimension of inequality.
That this somehow reads to you as totally normal and not at all anything to worry about tells me a lot about your perspective.
edit (addendum):
> "Joe Biden owns more cars (3) than the bottom 30% of the US SUMMED (0)"
Fairly certain the bottom 30% owns more than 0 cars in total.
18% of Americans are 14 years old or younger [and presumably almost none of them own a car], so if 15% of those 15 years old or older don't own a car, the total is over 30%.
It's still an absurd comparison, as 0% of people don't need money.
It's not clear how that makes inequality sound any better.
> For most of the population, their actual worth is stored in their human capital.
What does that even mean?
> Cars is such a weird dimension of inequality.
How so? Cars are freedom. Almost everything in life is more difficult without a car. It's difficult to shop. Difficult to find a good job and commute to that job. Difficult to move to a better city with more jobs and/or housing.
I was able to buy my first car before saving up the full amount for it. I was able to buy my first house (and later our current house) without saving the full amount.
Debt, used properly, can be a very useful and productive tool. Banning debt doesn't help all poor people and surely hurts many of them.
Nobody mentioned or suggested banning debt.
The problem for the bottom 40% isn't that they're spending too much; the problem is "their current resources", which are negligible.
If you're borrowing to buy a car you could never afford to impress your neighbor, that's probably not a good idea. If you've just had a kid and can't afford to pay cash for a car that has room for a seat and you have the choice of saving up for three years to buy one, or taking a 36 month loan now, then that interest is probably excellent value for money.
We start our lives in debt to the bank, and the bank ends up in debt to us - the "zero" point is actually not that interesting.
> What does that even mean?
for a person with no savings, i.e. no investments, it means that income from their wages is all the income they have.
if you have $500,000 invested in the stock market, you would expect income on average to be 7% of that per year, or $35,000. It's a nice boost to your income, but probably not enough to quit your job. If you job also paid you $35,000 a year, we could say that 50% of your worth is in your human capital because your wages are half of your income stream so it's pointing out an equivalency between an investment that returns $35K a year and a job that returns $35K a year. Other than literally being a value judgement, it's not a value judgement.
That's clear enough, but income, regardless of source, is already figured into net worth.
Whereas the OP seems to be talking about net worth being a bad measure, and instead there's some amorphous "actual worth" that's "stored" somewhere (obviously not in a bank account or other investment).
That interpretation is even more shocking than "the rich are so rich". Like, a very significant part of your population have to resort to borrowing money in a death spiral to bankruptcy, just to survive. While 40% just barely surviving paycheck to paycheck is bad enough, 40% in debt is even worse because the people who barely make do come on top of that.
The lower class minority struggles day to day, and the fat cats at the top make bank despite the world being embroiled into a multitude of parallel crises.
What. No, look, for example: assessed from a "net worth" perspective, almost every single college student is in the "debtor" column, because the net present value of a college education isn't something that shows up in the calculation.
If I borrow money to buy a car, but have no substantial savings, then I'm a debtor - but if I can easily afford the payment then there's no problem, is there?
You're making one of the exact same semantic errors as the OP was talking about.
Sometimes it never shows up. Mine never did. And I still have student loan debt.
When you're calculating values, consider that different students have very different levels of student debt despite receiving the same education. Rich kids with the bank of mommy and daddy don't need to borrow at all.
> If I borrow money to buy a car, but have no substantial savings, then I'm a debtor - but if I can easily afford the payment then there's no problem, is there?
No, because your net worth is not negative.
If I borrow money to buy a car, and I have no substantial savings, then for sure my net worth is negative because a car is a depreciating asset.
If you're truly living paycheck to paycheck, then you are actually in danger, because paychecks can easily stop, e.g., layoffs, and then you won't be able to "easily" afford your car payment.
This is not even mentioning other unexpected expenses that can arise and suddenly make your easy car payments not so easy.
And that's completely correct, given that there is an absurd amount of garbage colleges/degrees out there, that there's a massive oversupply of people with degrees, and that companies nowadays require degrees even for underpaid paper pusher jobs because it allows them to legally discriminate against otherwise protected classes. It's fundamentally impossible to assign any positive value to a college degree unless the person is actually employed.
> The richest 10 people are so rich that they have more than...
When, in reality,
> The poorest 40% are so poor that they have less than a normal poor person that only has $1 to their name
The fact that the richest 10 people ALSO have more than those 40% doesn't really add anything to it.
Oh yes, socially this point definitely adds to the discussion. Cap everyone's maximum wealth at 1 billion $ - that is more than enough for anyone and their descendants to never have to work a single day in life again - and tax and distribute the rest towards the poor.
You'd lift a massive amount of people out of utter poverty that way, while not even inconveniencing the fat cats riding on the backs of their employees - and you'd get a nice economic boost on top, like with the covid stimulus funds.
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.
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.
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.
"The fund shall be used exclusively for the purposes of subsidizing the cost of higher education, early education and child care for lower-income and middle-class residents of the commonwealth."
https://malegislature.gov/Bills/193/H2824
Now, money is fungible so, just like with lottery revenues that are devoted to "education spending" in some states, it could be the case that it won't in fact increase net spending for the designated purpose, since what would have been spent on this purpose will end up being redirected.
On the other hand, the projected tax revenue is so large (>5% of Massachusetts's entire annual tax revenue), that I suspect it would end up being a net increase in funding for the stated purposes, even accounting for fungibility.
The projected revenues from this are way larger than what's currently being spent on that purpose, so in that sense, there's no risk of "redirection" - if the projected revenues come to pass (which is likely, as a tax on an endowment is pretty easy to forecast) then it will result in an increase in funding for that purpose.
Although I wonder what the weird second order effects will be.
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.
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
Permanently restricted funds in endowments are legal.
https://en.wikipedia.org/wiki/The_Fellowship_(Christian_orga...
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.
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.
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.
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.
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.
Maybe they should stop allowing donors to put restrictions on how to use the money?
I doubt that is a tenable option for the owner/curator(s) of the endowment fund.
ref. https://philanthropydaily.com/what-malcolm-gladwell-gets-wro...
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.
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".
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.
There's no reason to donate thousands of dollars to a private, wealthy university that isn't to curry favor.
That's a problem for Harvard to untangle, not the Department of Revenue.
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.
There's so little insight and oversight for orgs that vacuum up public money.
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.
I struggle to see what they're doing right.
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!
If you want to look up to unexceptional people, you’ve already lost.
I'm very intrigued now. Who can I look up to, and what is the bar for being exceptional? It's any Harvard admit, or does it have to be a Harvard graduate? Does Brown count? What about Duke or Rice?
A bunch, what's your point? UVA is a very good institution.
> Top institutions don't need to be dragged down to meet the average based on some arbitrary criteria
"Dragged down" tell us how you really think about the bottom 99.99%! It makes me think you really don't think of the rest of us as proper citizens - should we gate more things to university admissions? Because last time I checked, the current POTUS went to University of Delaware, an institution even less exclusionary than UVA.
> If you don't like it, don't apply.
I think their influence on society should be crushed, because it's been a net-negative since the introduction of "meritocracy" to their admissions policies.
As Morill Act institutions (except for MIT, which is an aberration) Michigan/Harvard/UVA's purpose is also to educate and not to cultivate an elite.
If Harvard reduced financial aid, meaning that more people were dissuaded from applying, and that brought the numbers up to the same - would you be happy?
Looking at acceptance rate to define what is good or bad is just weird.
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"
Fwiw, wishing for the power to punish people for being highly educated is not a good look.
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.
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.
Not to mention you're far more likely to be considered a legacy student, which gives you a huge leg up.