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Jonathon Trugman

Jonathon Trugman

 Business

Universities’ large endowments are going untaxed

By
Jonathon Trugman
Published Sep. 24, 2017, 7:28 a.m. ET

Last week, two news items hit my radar screen. Tax reform moved to center stage in Washington, and Harvard University’s not-for-profit endowment underperformed again.

These two headlines meld into one for me, since I don’t understand how a college endowment — such as Harvard’s $37 billion larder — can be a tax-free entity.

Currently, the vast majority of private and public universities and colleges are tax-exempt, as defined by Internal Revenue Code Section 501(c)(3), due to their “educational purposes” that Washington has long supported as fundamental to “fostering the productive and civic capacities of citizens.”

A great idea if ever there was one. Allowing schools to reinvest their modest profits to grow, enabling them to hire new teachers, purchase new equipment and build new labs, all makes sense and is great for the “civic capacities of citizens.”

If only this were true without the largest loophole of them all. Virtually every college and university has an endowment, and, wouldn’t you know, most don’t always tap those funds for their students’ benefit.

Today, there are 57 schools with assets exceeding $1 billion in their endowments, and the more than $500 billion in all endowments goes untaxed.

The top school endowments trailing Harvard are Yale, at $25.8 billion, and Princeton and Stanford, both at more than $22 billion.

In 1990, Harvard’s tuition, including room, board and personal expenses, was $23,700, and its endowment was about $4.6 billion.
Today, tuition runs about $72,000.

So if Harvard only made some $3 billion in returns last year, and it’s still charging $72,000 thousand per student, then it clearly is no longer “fostering the productive and civic capacities of citizens.”

None of the schools in the $1 billion-plus endowment club needs this tax loophole.

Congress could easily come to a bipartisan win by closing this disgraceful abuse of the tax code — and help a lot of American families pay for school along the way.