The TaxMan Eyes Colleges

HMTKSteve

Lawmakers target $1b endowments

"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?"

I know we have some people from MA in here, what's the deal?

Kilarney

I'm just amazed that a school with a $34 billion endowment charges $50,000 per year to attend.

Neito

I know we have some people from MA in here, what's the deal?

The basic problem is, Massachusetts has a lot of tax-burden programs, like MassHealth, and we really can't be reasonably income taxed any more. We have to get the money from somewhere, and squeezing a stone ain't gonna get any blood out of it.

jcc

I'm just amazed that a school with a $34 billion endowment charges $50,000 per year to attend.

They probably only spend the interest they get through investing the endowment, which would be a lot less than 34 billion (although admittedly still a lot of money).

HMTKSteve

A quick Google search tells me that in 1998 Harvard had about 18,000 students enrolled.

If Harvard has the same enrollment numbers now that would work out to about $3 million per student. Which is enough money to give free tuition to all of its students for the next 60 years. That is assuming the money they have does not grow.

$34B at 1% = 340,000,000 per year.

18,000 students at $50,000 per year = $900,000,000

If the school can make 3% or more interest on their endowment fund they will make enough to cover the tuition off all of their students.

Apreche

If you are non-profit, and you have money left over after all your expenses are paid, the government should automatically get 100% of the leftover cash. School or no school. If you declare yourself non-profit, you should not be allowed to generate profit. You can be exempt from all other taxes, to make it as easy as possible for you to reach that magical break-even point. But if you make money, and you can't find a way to spend that money, then yoink! Increasing the university president's salary to $1 billion per year does not count, either.

HMTKSteve

If you are non-profit, and you have money left over after all your expenses are paid, the government should automatically get 100% of the leftover cash. School or no school. If you declare yourself non-profit, you should not be allowed to generate profit. You can be exempt from all other taxes, to make it as easy as possible for you to reach that magical break-even point. But if you make money, and you can't find a way to spend that money, then yoink! Increasing the university president's salary to $1 billion per year does not count, either.

Rather than have the government seize the money I would rather see the college provide more 100% scholarships to the students. Or do something with the money to help education in the local municipality where the college resides.

jcc

If you are non-profit, and you have money left over after all your expenses are paid, the government should automatically get 100% of the leftover cash. School or no school. If you declare yourself non-profit, you should not be allowed to generate profit. You can be exempt from all other taxes, to make it as easy as possible for you to reach that magical break-even point. But if you make money, and you can't find a way to spend that money, then yoink! Increasing the university president's salary to $1 billion per year does not count, either.

Rather than have the government seize the money I would rather see the college provide more 100% scholarships to the students. Or do something with the money to help education in the local municipality where the college resides.

Harvard itself says this:

During the 1999-2000 academic year, Harvard undergraduates received $59 million in scholarship aid alone, more than 90 percent of which came from the College. About 48 percent of Harvard undergraduates receive scholarship grants averaging $18,700 each. Approximately 70 percent of undergraduates receive some form of financial aid, totaling more than $81 million. The total average financial aid package, including grants, loans, and term-time jobs, is more than $22,900.

In a real sense, all students at Harvard are on financial aid because the actual cost of a Harvard education exceeds the cost of tuition by approximately $10,000 per student. This subsidy is made possible through gifts and endowment funds.

Apreche

Rather than have the government seize the money I would rather see the college provide more 100% scholarships to the students. Or do something with the money to help education in the local municipality where the college resides.

If the college has more income than expense, they are completely free to find ways to spend that money. If they want to build buildings, buy more land, serve gourmet food, or give everyone free tuition, that's entirely up to them. However, the government should not be able to force any of those decisions. Simply taxing 100% of their profits will be enough incentive to have the university figure out ways to spend their cash.

Kilarney

Granted, the statistic if from 1999-2000, but $59 million per year in scholarships? That's a complete joke. A measly 1% of 34 billion is 340 million. They'd have no problem building their principal if they only gave out 1% of the endowment per year. Yet they give out substantially less.

I suppose you could argue that the money is being spent elsewhere on campus, but shouldn't that help keep tuition low? I don't consider $35,000 per year tuition to be low at all. (That's just tuition. With expenses it is $50,000 per year.)

With an endowment such as this, no kid should leave Harvard with student loans. Period.

I'm not as strict as Scott when it comes to non-profits, but this is an absolute joke. This is accumulation for the sake of accumulation.

jcc

http://harvardmagazine.com/2004/01/buildings-and-benefits.html

A bit old, but it outlines the sort of things that Harvard spends its money on.

*Edit: Also, the 2007 fiscal report.

HMTKSteve

Rather than have the government seize the money I would rather see the college provide more 100% scholarships to the students. Or do something with the money to help education in the local municipality where the college resides.

If the college has more income than expense, they are completely free to find ways to spend that money. If they want to build buildings, buy more land, serve gourmet food, or give everyone free tuition, that's entirely up to them. However, the government should not be able to force any of those decisions. Simply taxing 100% of their profits will be enough incentive to have the university figure out ways to spend their cash.

That is how taxes work. The government says, "either spend the money on education or we take some of it." The Tax Code in the USA is full of such things whether it be in the form of tax breaks or tax credits.

TheWhaleShark

http://harvardmagazine.com/2004/01/buildings-and-benefits.html

A bit old, but it outlines the sort of things that Harvard spends its money on.

*Edit:Also, the2007 fiscal report.

The thing that stood out to me was that their endowment grew 23% over the course of the year, earning 5 billion dollars. They could have spent $1 billion of that endowment income and made tuition free for every single student.

Let's say the endowment only earns 10% in the next fiscal year; that would be an all-time LOW in its earnings. Their $35 billion dollar endowment would earn $3.5 billion, and they could spend $1 billion of that to give all their students free tuition and expenses. They could have 3 times as many students as they do currently and STILL make money on their endowment.

Institution of higher learning my ass.

jcc

http://harvardmagazine.com/2004/01/buildings-and-benefits.html

A bit old, but it outlines the sort of things that Harvard spends its money on.

*Edit:Also, the2007 fiscal report.

The thing that stood out to me was that their endowment grew 23% over the course of the year, earning 5 billion dollars. They could have spent $1 billion of that endowment income and made tuition free for every single student.

Let's say the endowment only earns 10% in the next fiscal year; that would be an all-time LOW in its earnings. Their $35 billion dollar endowment would earn $3.5 billion, and they could spend $1 billion of that to give all their students free tuition and expenses. They could have 3 times as many students as they do currently and STILL make money on their endowment.

Institution of higher learning my ass.

As I understand it, most of that money is fairly new (made in the last 10 years), the product of clever investing by Jack Meyer and not-screwing-it-uping by Mohamed A. El-Erian.

They had $3.21 billion in revenue in 2007, and they spent $3.17 billion of it. I suppose they could have spent the surplus on financial aid, but they didn't seem to have a billion dollars that wasn't already marked for spending elsewhere.