Let’s tax Yale — Here’s why and how
The state's fiscal problems are still in search of a solution as we reach the midpoint of the 2017 legislative session, which is nothing more than a tug of war between the state employee unions (the governor has asked for $700 million in concessions), and taxpayer wallets and pocketbooks.
In the midst of the dissonance, union leadership is continuing to call for higher taxes on the rich to prevent state employee layoffs and concessions.
For example, in a March 24th Connecticut Mirror story ("Dems, GOP test their arguments on labor cuts, tax increases") state AFL-CIO President Lori Pelletier argued: "The problem is a lack of political will to require corporations and the wealthiest individuals … to contribute to our economy and our society at the same rates as working and middle class families."), while New England SEIU 1199 President David Pickus said "Rather it is a larger question of, are you ready to have Connecticut become a state to start rolling back these recognized human rights of workers who dedicate their lives to serving our state?"
Candidly, I have trouble reconciling my experiences at places like the DMV with Mr. Pinkus' elevation of meat-and-potato issues like unfunded pension and healthcare obligations to the higher plane of "recognized human rights" of state employees. But if he really believes this is a matter of human rights I have a suggestion for him: He should resurrect last year's attempt (sponsored by Sen. Martin Looney, D-New Haven) to extract some tax revenue from Yale to see if that will get everyone off the backs of union members.
A year can make a difference, and as far as taxing Yale is concerned the difference can be found in a recent (March 2017) study entitled "Ivy League Inc.," prepared by an organization called American Transparency (Openthebooks.com). The study discloses the massive federal and state taxpayer subsidies, tax breaks, and payments that flow into the eight elite colleges and universities that comprise the Ivy League, of which Yale is a prominent member.
The numbers are pretty stark and the report is easy to find on the internet (where there are specifics to be found), so let me pull out just four Yale numbers for the six-year period 2010-2015 that speak for themselves.
First, Yale (as a tax-exempt entity) did not have to pay corporate income taxes (as would other corporations) on the earnings from its $25 billion endowment — a savings of $2.1 billion. Second, it received $2.96 billion from a combination of federal contracts, grants and payments. Third, the state of Connecticut paid $31.8 million to Yale under various service contracts with state agencies (taxpayers are giving Yale a lot of business).
Finally, Yale saved $708 million in municipal property taxes (that other corporate entities would have paid over these years).
It would be easy to add some anti-Yale spin to these numbers if I were so inclined, but I want to be fair; and, to be sure, Yale could launch in response a fuselage of Ivy League quality analysis designed to rearrange and explain the numbers to make whatever public relations case it wants in its defense.
Nevertheless, I spent over three decades practicing tax law and know the issues pretty well, and when I step back and look at the massive, sprawling and animated economic enterprise that is Yale, and then see just how much it benefits from federal and state taxpayer money, let alone its use of Connecticut state and municipal roads, bridges, services and the like, it's easy to make the case that Yale could contribute more "to our economy and our society at the same rates as working and middle class families."
As a technical matter, it would be pretty easy to tax Yale, and I believe that Sen. Looney's proposal to do something like this last year failed so miserably (and brought national ridicule to the state) because it was rolled out so badly. In fact, the proposal was based on some hard and competent tax thinking that has floated around Congress and Washington D.C. think tanks for years — and it would not "tax Yale" in the broad sense, but it would impose an excise tax only on the income and gains from Yale's endowment (its "savings account").
There is, in fact, a class of tax-exempt organizations (private foundations) that have been subject to a 2 percent tax of this type since 1969, and the Congressional proposal (which Connecticut could adopt) would piggy back on this same approach (at a tax rate to be determined).
Yale's investment earnings in 2014 were $2.9 billion (as reported on line 10 of its publicly available tax return for that year), and I leave it to Mr. Pinkus to do the arithmetic necessary to figure out how much could be extracted to make a dent in the unfunded pension and healthcare obligations owed to his membership as a matter of human right or otherwise.
John M. Horak is the director of TANGO Nonprofit Education and Consulting.