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Good points, and thanks for reading!

You're definitely right that "educating undergrads" is not the "primary purpose" of these institutions. I definitely did not & do not believe that. If that came through in the essay, I apologize for being inaccurate. If anything, I expected the response to be that I was assuming the primary product of a research university was Investment Returns, which is at least closer to a point I tried to make.

Regarding Research: "Research" in the abstract is -- I believe -- considered a tax-deductible expense in America, and the IRS treats it pretty favorably and that's probably for the best.

However, engaging in "research" to some capacity does not -- to the very best of my knowledge -- allow you to claim a full tax-shield on the Investment Profits of $10 billion+ merely by virtue of the fact that you engage in "research" (compare: Big Pharma, which actually has to write off expenses in order to reduce taxes, or Google or Boston Dynamics).

That is VERY different from how Education works today. To be a University is to be a Charity operating in the Education space. Additional Revenues and Expenses in Research areas are not important for this designation. Once the designation is established, the returns on your Investment Profits (invested in both the open and closed markets) are tax-free, forever.

That's a pretty big deal in the finance world as it relates to your ability to accumulate capital and build Wealth.

Whatever the "primary purpose" of that Wealth might be, the fact remains that (at MIT) that Wealth has grown 1,500% over the last 25 years, while the operating budget has grown ~250%. I believe that is somewhat noteworthy, and I could not avoid noticing how critical the Education-Charity tax-shield was to this compound growth.

The question I tried to raise was: "if your Education was affordable, would we allow the service provider to be considered a Charity?"

Regarding finances & more data: every institution named in this essay has it's 2017-full-year financial report linked, which I spent some time going over to better understand revenue sources (i.e. to understand the truly minimal importance of Tuition) and expenses (to understand the nature of the costs involved).

Sadly that data doesn't appear to segment anything by "research intensity", but it usually pulls research out at least research in all forms. And you're right, that Research usually dominates both "Instruction" and "General & Administrative" in terms of spend. (Quick example here: https://web.mit.edu/facts/financial.html, the other institutions have their fully detailed reports linked in the bullets at the start of the essay )




I see that your point is more focused on the financial side, which I don't have a lot of experience to evaluate.

> Whatever the "primary purpose" of that Wealth might be, the fact remains that (at MIT) that Wealth has grown 1,500% over the last 25 years, while the operating budget has grown ~250%. I believe that is somewhat noteworthy, and I could not avoid noticing how critical the Education-Charity tax-shield was to this compound growth.

This is noteworthy, but is it really out of line? You're comparing apples (Wealth) to Oragnes (Operational Expenses). From a strict financial perspective, the standard advice to ensure an endowment or lump sum lasts is a 4% withdrawal rate. At a 4% rate, a 1500% increase in wealth would result in a 60% increase monies available to spend operationally. 250% is much higher than that, although not all of the operational increase comes from the endowment.

Is there an accepted rate of expenditure that endowments should target? Is MIT meeting or exceeding that?


I think your math is off. If I have a $100 endowment, I have $4 to spend. If I have $1500, I have $60 to spend, 15 times as much as $4.


> Once the designation is established, the returns on your Investment Profits (invested in both the open and closed markets) are tax-free, forever.

So it sounds like you'd be a fan of Trump's tax on university endowments? I was surprised it wasn't mentioned at all in your writeup. https://www.chronicle.com/article/A-Tax-on-Endowments-Became...


If OP's analysis is correct, will this new law help keep Ivy's tuition in check?

I wonder if we will see those school open a "sister school" which enrolls tens of thousands of students, with that school under the same endowment, so that they can remain under the threshold of $500k per student, while keeping the prestige of the original school intact?


Yeah it turns out that new regulations often lead to unexpected consequences, especially when the regulated entities are some of the most well-advised organizations in the world. I saw a lot of this in my prior life working at a big law firm as a tax lawyer.




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