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Written by Kenneth D'Amica
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Thursday, 15 May 2008 04:32 |
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Making headlines recently has been a proposal put forth by Massachusetts State Representative Paul Kujawski to impose a tax of 2.5 percent on university endowments over one billion dollars. The rationale is that the tax-exempt status enjoyed by big universities such as Harvard and MIT leads them to hoard cash rather than redistributing it in ways beneficial to host communities. Taxing large endowments, then, would be a way of ensuring that communities are not overburdened by the institutions which use public amenities such as water and waste management while not paying taxes on prime real estate. But perhaps the most important catalyst for this legislation is the projected budget deficit of almost $12 billion for the 2009 fiscal year, which means that more than 35 percent of the total budget is not covered by existing revenue sources.
Not surprisingly, the universities that would be affected have spoken out against the proposal, stating that the taxes would reduce the amount of money available to students. Harvard currently waives tuition and fees entirely for any student whose family income is less than $40,000, and other universities have similarly robust financial aid programs. The endowments are also crucial to the long-term prosperity and expansion of the universities. This tax would make expansion within Massachusetts less attractive, and new research centers and facilities could be located elsewhere. The 2.5 percent tax would take roughly $800 million from Harvard’s endowment each year, more than it generates in annual fundraising in any given year. This is because the tax is on the money and assets held by the university, not on its income. In addition, knowing that every dollar donated would go directly towards supporting government deficits could deter would-be donors. Rep. Kujawski has said that “the first billion isn’t going to be touched. So maybe more of these schools might provide more funds for their students, to stay under the billion.” This is disingenuous. Taxing universities for being among the best in the world is no way to resolve Massachusetts’ budgetary woes. Staying “under the billion” is clearly not an option for universities that have already accrued funds well above this mark, and his suggestion, as well as his proposal, is both myopic and irresponsible.
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You're reading it correctly. The tax is on assets held, not on income, so the number is quite high. In the short-term, it is probably unrealistic for Harvard to shift its operations elsewhere.
However, the endowment is seen by Harvard administrators and trustees as a way of guaranteeing the long-term prosperity and stability of the university. Thus it seems unlikely that they will allow the endowment fund to take the entire $850 million hit, and so there may be decreases in spending on current operations.
It is, of course, impossible to forsee how the affected universities would respond to the tax if it were implemented.