Do Wealthy Colleges Deserve Their Tax Breaks?

In many countries institutions like universities and museums that mix public and private benefits are provided directly by governments. The U.S. is unusual in relying so much on support through the tax system for such institutions, an approach that is arguably less democratic but more decentralized and entrepreneurial. When financed through a tax system that allows large charitable deductions for the wealthy and untaxed accumulation of endowment, this system also produces great inequality, which is as obvious in lavish museums like the Getty or opera houses like the Met as it is at Princeton or Williams.

There are better uses for public taxpayer dollars than adding to the subsidies enjoyed by the tiny number of students fortunate enough to attend the wealthiest private colleges.

It makes little sense to single out universities from among philanthropies, and even less to suggest that subsidy policies toward our more than 2000 nonprofit universities and colleges should be driven by reactions to a handful of extraordinarily wealthy places. There are plenty of private colleges that are no better off than the College of New Jersey, and letting one’s views on Princeton drive policy toward them is shortsighted.
Instead, we should change the tax system to make a smaller fraction of gifts deductible as a family’s income rises. A modest and perhaps progressive tax on endowment earnings of all philanthropic institutions (including foundations like Spencer and think tanks like the American Enterprise Institute) might make sense too. But such changes should apply uniformly across philanthropies; the idea that the federal government should be deciding that universities deserve one treatment and art museums another – let alone playing favorites within those categories – makes little sense.

There are surely better uses for public taxpayer dollars than adding to the subsidies enjoyed by the tiny number of students fortunate enough to attend the wealthiest private colleges. More generous subsidies to public colleges and universities are among those more equitable and productive options. But designing policies to move what in the scheme of things is a relatively small amount of money away from an arbitrarily chosen irritant would not be a constructive move toward more sensible public policies.

THE NEW YORK TIMES

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