A researcher from the Urban Institute recently commentated about the “tradeoffs” of a 1.6 percent tax on universities with endowments worth greater than $1 billion. Proposed by the 2018 Democratic gubernatorial candidate Jay Gonzalez, the tax would affect nine private universities in Massachusetts. Here’s something to keep in mind: The researcher is a graduate of Wellesley College, one of the private universities that would be subject to the tax.
She argues that since there is a correlation between the size of an endowment at a university and the endowment spending per student, low income students at high endowment universities greatly benefit from the endowment in the form of heavily subsidized attendance costs. Thus, by taxing endowments less money is available at private universities to provide for low income students.
One key fact to also consider that the author touches on is that universities with high endowments also enroll proportionally fewer low-income students. Hence, even if the tax was administrated only a small number of low income students (in comparison to low income students at other universities) would be affected.
A critical aspect of this tax which is ignored is the redistributive effects of the tax in the form of greater social benefits. Since the proposed tax would go to public services including primary and secondary education, higher education, and public transportation the result of expanding these services would considerably help low income households. Therefore, it is very likely that more low-income students would benefit from the tax than be hurt by it.
On a further note, let’s explore a graph created by the researcher which quantifies how much each private university would pay due to the tax.Proposed Massachusetts tax on college endowments could raise $1 billion, but what are the trade-offs?
A mere 1.6% tax on Harvard’s endowment would raise over $570 million in revenue. Considering that providing all in-state students at UMass a tuition free education would cost around $400 million, and that a tuition free education for all in-state students that attend either a community college, a state university, or UMass would cost around $800 million, Massachusetts could milk Harvard alone and deliver tuition free higher education for everyone across the state. Certainly, far more low income students that are attending institutions of public higher education would benefit than those low income students who attend Harvard.
I also like to add that generally any effort to support public education even at the expense of private education should be supported. In 1862, when U.S Senator Justin Morrill introduced his Land-Grant Colleges Act he declared that it is now finally time for the American people to “to ask for what is their due.” Public education should be America’s heart of democracy and inclusively. Initiatives that support this vision such as Jay Gonzalez’s endowment tax need to be welcomed, not discouraged.
