
Is It Time to Tax Harvard’s Endowment? - chrisBob
http://www.slate.com/articles/business/moneybox/2015/09/harvard_yale_stanford_endowments_is_it_time_to_tax_them.html
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mhb
It is disturbing that the author so lightly morphs a tax exemption into a
taxpayer subsidy. As if the natural state of things is for the government to
tax everything and whatever it doesn't is being subsidized.

~~~
mikeash
What's the difference between giving you $X that other people don't get, and
asking you to pay $X less in taxes that other people have to pay?

~~~
rubidium
Because it's an educational institution. That's the whole point! Harvard gets
to have people with no money get degrees from their school for free because of
this. It's a wonderful thing for society that they have such a big endowment.

Why anyone would get so money hungry as to attack them is beyond me.

~~~
hackuser
> Harvard gets to have people with no money get degrees from their school for
> free because of this.

As far as I know, enrollment at Harvard and most other elite institutions
skews heavily toward wealthy people.

~~~
smeyer
Yes, Harvard disproportionately has many wealthy people compared to the
population at large, but it also provides free educations to large numbers of
people. Last I checked, the cutoff was around 60k (meaning, if your family
makes less than 60k, Harvard will foot the entire bill). The challenge of
overcoming this skew towards wealthy students has more to do with education in
general and recruitment than the price tag when it comes to some of the
wealthiest schools.

~~~
hackuser
One reason, at least, that they skew toward wealth is that they don't market
themselves to others. Recent research has shown that the best poor students
often have no idea that Harvard and other elite schools exist (as hard as that
is to believe for most people on HN), much less that they might be accepted
and afford to attend, and that they never apply. Remember that many of these
students come from a world where few go to college, much less where elite
schools are discussed or where their graduates and others with those kinds of
career are around them.

And the few who make it fail at much higher rates; from what I recall research
points to the fact that colleges are geared toward middle/upper-middle class
students, mostly white. The cultural adjustment is huge (remember these are 18
year olds leaving their neighborhoods for the first time) and few adults or
peers understand their situation. Also, many have poor support from home,
financially and socially; rather than receiving encouragement, they get asked
why they are wasting time and money on college.

In effect (and assuming Harvard follows those patterns) Harvard offers aid
with the knowledge that few will take it, and without orienting their services
to serve the new students. They could do much better. From what I understand,
Amherst has gone a long way toward solving these problems.

~~~
smeyer
Harvard tries to recruit these students, but obviously isn't doing a good
enough job of it. As a Harvard alum, this is somewhere that I'd particularly
like to see them improve in terms of undergraduate education. When a majority
of students are on financial aid, I don't think it's fair to say that "few
will take it". Also, Harvard's graduation rates are so high that even if
failing and dropping out are much more common among particular demographic
groups, the graduation rate is still extremely high across the board (some
would claim that it's too high and indicative of the extent of grade
inflation.) There's a general philosophy at Harvard that while it may be hard
to get in as an undergraduate they'll do everything they can to make sure you
graduate.

>Amherst has gone a long way toward solving these problems

They have, but I don't think they have a massive lead over Harvard. If I
recall correctly, both have similar aid profiles, are giving aid to a similar
percentage of their students, have a similar percentage from low-income
families, and have a similar percentage of students of color. I believe the
graduation rates are also similar. Amherst has been a real leader in this
area, so I'm sure there are areas where they're leading Harvard, and please
let me know if my memory (or bias) is deceiving me or my information is out of
date.

~~~
hackuser
> When a majority of students are on financial aid ...

A bit of a tangent: It also depends on how financial aid is defined. Many
schools set an arbitrary price that very few students actually pay, the
equivalent of a 'manufacturers suggested retail price'. In one NY Times story
on this topic, at the school they looked into around 1% (IIRC) paid the MSRP;
everyone else got a 'discount', the same trick salespeople have used forever.

I've had people applying to college happily tell me, 'the school offered me
$30K in financial aid'. I try to (gently) tell them that it doesn't matter how
much 'discount' the school offers, it matters how much they charge you. They
can arbitrarily set their 'MSRP' at $100K and give you $80K in 'aid', or set
it at $20K and give you no 'aid'; the result is the same.

~~~
smeyer
Absolutely! But many of Harvard's peer institutions have sticker prices just
as high without the same level of financial aid. I'd say a fairer metric to
use for comparison is what fraction of people have sufficiently large
financial aid packages that they pay less than $X where X is some reasonable
value (maybe the median cost of in-state tuition at flagship state schools?).

Another thing to watch out for is schools that say "the MSRP is $50k but we
gave you $30k in aid so it's really $20k" when that $30k is _loans_ , not
_grants_. Harvard doesn't use loans (and very few students take them out), but
as you go down a few tiers in financial aid that changes rapidly.

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chrisBob
People give these elite colleges and universities a hard time, but I think it
is mostly sensational stories with no meat. Do you know how many US schools
are need blind and meet full need for all students? 6. [1]

I also have no clue where the story about these schools being for rich kids
came from. When my wife went to Princeton a few years back it was one of the
cheapest options for her! Schools all base need on the same FASA form, but
then these "expensive elite schools" will do things like cover the student
portion of the aid with a grant instead of loans [2]. This makes their
financial aid package _much_ better than at most schools.

[1] [https://en.wikipedia.org/wiki/Need-
blind_admission](https://en.wikipedia.org/wiki/Need-blind_admission)

[2]
[https://admission.princeton.edu/financialaid](https://admission.princeton.edu/financialaid)

~~~
dalke
What would "meat" look like to you?

Suppose you _were_ to start "a hedge fund with a university attached to it",
in order to use the university's non-profit status to minimize paying taxes.
What would that look like? Would you set up need blind admission, in order to
provide better cover to justify the hedge fund?

The article points out that the non-profit status means that "Princeton
received $105,000 in tax benefits per student. Rutgers, New Jersey’s flagship
public university, got just $12,300 per student in public funding." and "Among
the 60 schools Schneider and Klor de Alva analyzed, private universities with
large endowments averaged $41,000 in tax subsidies, compared with $15,300 in
direct funding for public flagships, $6,700 for regional state colleges, and
$5,100 for community colleges."

Perhaps the extra $90K/year effective subsidy per Princeton student explains
why Princeton was one of the cheapest options?

~~~
nemothekid
I'm not sure what your point is. Let's say the above were true, a non profit
organization uses its tax subsidies to let students attend for free - how is
that not a _good_ thing? And how is that not something that should be
encouraged?

~~~
dalke
My point was that the article provided some substance, and gave numbers which
explain why a needs blind admission policy does not, on its own, justify the
existing tax policy.

The question you asked was addressed in the article, in statements like "In a
world where the government only provides limited resources for higher
education, we’re almost certainly shoveling an outsized share of them to
schools that don’t need the financial help." and "we seem to have stumbled
into a system that disproportionately subsidizes the educations of a tiny
few."

The second page tries to address what a more equitable distribution might be.
For example, "Republican Sen. Chuck Grassley caused a minor uproar in higher
education circles by proposing that colleges should be forced to spend 5
percent of their endowments every year, the same way private charitable
foundations are."

However, the author is clear that there is no simple answer, and leaves the
topic hanging with "I think we’d all like to spend a little less money sending
other people’s kids to Harvard."

Personally, I think it should have ended with "we'd all like to spend a little
less money sending people to Harvard and more money sending more people to
college."

As to your last question, there is a balance of factors that make it difficult
to answer. If the monetary policy is such that one person gets to attend
Harvard for free or 4 people get to go to a public college for free ... which
should we choose, and why? (Based on the numbers in the article, and the cost
of tuition for different colleges, the actual number is probably between 1:2
and 1:6.)

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kailuowang
When public education needs more money, taxing private education to support
them doesn't help education in the society as a whole.

High education should not be taxed, period. It's investment towards more tax
income in 3-4 years. If you need to tax something to support some providers of
education, it's not other providers of eduction.

~~~
jhugg
One issue here is using tax policy to incentivize investment in higher
education by penalizing institutions for NOT spending huge endowment windfalls
on higher ed.

You don’t tax Harvard the school like you tax a corporation. You tax Harvard
the fund, if and only if it’s not existing primarily to support Harvard the
school.

Sitting on money doesn’t help the economy much.

~~~
chimeracoder
> Sitting on money doesn’t help the economy much.

This is a really dangerous misconception. "Sitting" on money isn't really
possible, by _definition_. All money is being put to work at some point, it's
just a question of where[0].

Broadly speaking, when people store money in banks, that money gets loaned out
to people. If you have a mortgage, that's coming from money that someone was
sitting on. If you are working at a venture-backed company, your paycheck is
paid (through a lot of middlemen) from money that someone was sitting on.

It's impossible for money to be 'sat on' without helping the economy. In fact,
our economy _depends_ on people saving money this way.

[0] Again, this is true by definition; savings are investments. Saying that
saving money isn't helpful is equivalent to saying that investing money isn't
helpful.

~~~
Retric
Banks can only give loans on a portion of their holdings, the rest of the
money really does just sit there doing nothing. Arguably, it's a hedge however
the FED even manages reserve requirements in terms of monitory policy not as a
hedge.

[http://www.federalreserve.gov/monetarypolicy/reservereq.htm](http://www.federalreserve.gov/monetarypolicy/reservereq.htm)

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Quanticles
1\. If you're going to tax universities, then you need to tax churches too.
Good luck.

2\. If you're going to tax non-profits, then why have non-profits?

3\. Do we really want to penalize fiscally responsible organizations when even
governments are going bankrupt? What values are we trying to support here?

~~~
Animats
_" If you're going to tax universities, then you need to tax churches too.
Good luck."_

Right. There are some very wealthy churches. In the United States alone, the
Catholic Church has an operating budget of $170 billion. That's bigger than
Apple.

~~~
dkidd
I assume you're getting the $170 billion figure from this article:
[http://www.economist.com/blogs/newsbook/2012/08/catholic-
chu...](http://www.economist.com/blogs/newsbook/2012/08/catholic-church-
america)

I think it's worth noting that over $147 billion of that number is spent by
Catholic hospitals ($98.6 billion) and universities ($48.8 billion). The
number more representative of what most people mean when they refer to
"churches" would be Parish disbursements ($11 billion). $11 billion is nothing
to sneeze at, but when you consider that there are about 17.5k parishes in the
US (many of which have schools) it's a less impressive number.

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gtrubetskoy
I don't have any objections to the Harvard endowment being so large. What this
article doesn't mention, however, is that there is a growing trend of
corporations and the wealthy buying questionable research in order to achieve
political/business goals, more and more educational institutions are becoming
depended on this kind of income. This sort of thing should probably be taxed
(if it's legal to begin with). (This is not specific to Harvard, Harvard is
probably least guilty of this, actually).

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adultSwim
Yes

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mindcrime
This is already subsumed by Betteridge's Law of Headlines anyway, but I'm
tempted to propose a new "Internet law" that says "For any question that
starts with 'Is it time to tax ...' the answer is always 'No'".

~~~
mindcrime
It's interesting to see a group of people who self-identify as being part of
the hacker community - through their presence here - tacitly endorse violence
to achieve their ends. And make no mistake about it, taxation _is_ violence.

Don't believe me? Try not paying "your" taxes sometime, and wait and see how
long until the State sends men with guns to arrest you. And then try defending
yourself against these men with guns.

We can do better than this. We should be promoting non-violent self-
government, not embracing a system which is completely predicated on the use
of violent force to ensure compliance.

