For the Good of Illinois

Forbes: Ten Reasons Why Congress is Right to Tax the Ivy League

November 27, 2017 10:00 AM
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Ten Reasons Why Congress Is Right To Tax The Ivy League

Adam_Forbes_Bio 

Many pundits describe the Ivy League as "a hedge fund with classes."
 
They are right, and Congress seems to agree. House and Senate Republicans are proposing a new 1.4 percent tax on endowment income for America’s richest private colleges - including the eight Ivy League schools.
 
Harvard President Drew Faust fiercely opposed the tax, claiming the school’s endowment is "at work in the world" not "locked away in some chest." But Faust isn’t complaining about the largesse the Ivies receive from the federal government even though the Ivies have amassed an enormous endowment.
 
During the spring, we released our OpenTheBooks Oversight Report: Ivy League, Inc. that showed how $42 billion in U.S. taxpayer subsidies, special tax-breaks, and Federal payments (contracts and grants) went into the eight Ivy League colleges during the past six years. In our comparison of federal contracting and grant payments, the Ivy League outranked sixteen state governments as a recipient of funds – despite amassing a $120 billion endowment.
 
 
Here are 10 reasons why tax reform should include the Ivy League:
 
  1. Ivy League payments, subsidies and special tax treatment cost taxpayers $41.59 billion over a six-year period (FY2010-FY2015). This is equivalent to $120,000 in taxpayer-backed perks per undergraduate student, or $6.93 billion per year.
  2. The Ivy League was the recipient of $25.73 billion worth of federal payments during this period: contracts ($1.37 billion), grants ($23.9 billion) and direct payments – student assistance ($460 million).
  3. In monetary terms, the Ivy League’s "government contracting" business ($25.27 billion – federal contracts and grants) exceeded their educational mission ($22 billion in student tuition) FY2010-FY2015.
  4. The eight colleges of the Ivy League received more money ($4.31 billion) on average annually from the federal government (contracts and grants alone) than sixteen states: see report.
  5. The Ivy League endowment funds (2015) exceeded $119 billion, which is equivalent to nearly $2 million per undergraduate student. At current gift and investment growth rates, the Ivies are pacing for a collective $1 trillion endowment over the next twenty years.
  6. As a non-profit, educational institution, the Ivy League pays no tax on investment gains. Between FY2011-FY2015, the Ivy League schools received a $9.6 billion tax break on the $27.3 billion growth of their endowment funds. In FY2014, the tax-free subsidy on endowment gains amounted to $3.4 billion, or nearly $60,000 per student.
  7. With continued gifts at present rates, the $119 billion endowment fund is equivalent to free tuition to the entire student body in perpetuity. Without new gifts, the endowment is equivalent to a full-ride scholarship for all Ivy League undergraduate students for 51-years, or until 2068.
  8. In FY2014, the balance sheet for all Ivy League colleges showed $194,332,115,120 in accumulated gross assets. This is equivalent to $3.35 million per undergraduate student.
  9. The Ivy League employs 127 professors, administrators or executives who each earned more than $400,000 annually; 47 employees made more than $1 million a year; and four executives made more than $20 million each over the past five years.
  10. In a five-year period (2010-2014) the Ivy League spent $17.8 million on lobbying, which included issues mostly related to their endowment, federal contracting, and immigration and student aid.
So, why are the Ivies apoplectic about a small 1.4 percent tax on their future endowment investment gains? We calculated that the tax would have generated "only" $1.2 billion during the past five years. Compared against their $200 billion in assets, that’s roughly one-tenth of a penny on each dollar of assets per year.
 
Congressional attention on the Ivies shouldn’t stop with passage of this miniscule tax. Congress needs to cut and claw back some very embarrassing examples of Ivy League waste. Here are some of those grants:
 
  • Columbia University received $5.7 million from the National Science Foundation to develop a website called Future Coast, which features voicemails from 50 years in the future after climate change has destroyed the Earth.
  • Brown University received $53,419 from the National Institutes of Health to research whether gay men and male sex workers in Mexico City could be paid by the government to decrease their number of sex partners and use condoms.
  • Dartmouth University received $137,530 from the National Science Foundation for a recession-inspired video game called Layoff that charges players with firing as many people as quickly as possible until they receive a bank bailout. Bankers cannot be fired, because businesses receive their government bailout monies through the bankers.
  • Cornell University received $882,841 in grants from the Department of Health and Human Services to study and develop intervention programs aimed at "improving engagement in advanced care planning among Latino cancer patients." The programs set out to help patients "reframe their beliefs" on death and dying.
  • The University of Pennsylvania received $24 million in grants from the Small Business Administration. The university has $20 billion in its endowment and a network of wealthy business people to raise even more – that is not small business.
How can Ivy League schools defend not paying tax on their vast wealth in an era when student debt surpassed $1.3 trillion and tuition hikes are the new normal?
 
Despite the divisions in Washington, D.C., taxing the Ivy League is beginning to look a lot like a non-partisan issue. The Ivy League doesn’t need taxpayer help and the gravy train needs to end. It couldn’t happen soon enough.
 
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