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.
I was in the same boat. It was MUCH cheaper (> $20K/yr cheaper) for me to go to an Ivy school than it was for me to go to any of my other options (including an in-state school that people considered to be the 'cheap' option).
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?
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?
We should compare to how much good the same money would do if it was taxed instead of left to Harvard? E.g. the German state pays $32,000 per student and degree, so foresaking $400,000 of taxes in order to educate one student seems like a bad deal.
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.)
> 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.
Who is "you"? Certainly not someone who expected to ever extract cash from their hedge fund in order to make it part of their income for that year.
Now you might say the school is a lavish club for students and faculty, but who benefits from that? Not the donors. If they're wealthy, they've got far more efficient spending options to enjoy marble floors and leather sofas.
> 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?
As long as all the funds went towards the chartered goals of the non-profit, it would look like a really good idea for sustainable funding.
I don't see any reasonable basis on which the article's comparison makes sense. They compared the tax not paid by a registered non-profit with tax funds taken from taxpayers and spent on public universities, such that if someone doesn't pay . Apples and oranges. To look at it another way, the private university provides what most people consider a "better" education without receiving any public funds; clearly we need more such institutions if possible.
Apart from that, based on past evidence, collecting such taxes would not replace taxes collected from others to support a tax decrease; rather, it would just increase the total size of the budget.
Looking at tax you wish you could collect but have no legal right to and salivating over it makes as much sense as looking at the contents of someone else's bank account and wishing it was yours.
"To look at it another way, the private university provides what most people consider a "better" education without receiving any public funds; clearly we need more such institutions if possible."
If Harvard were taxed, would it still provide better education?
For accounting purposes, what's the difference between the non-profit status and a subsidy on the equivalent service provided by a for-profit company? Because I don't see a difference. It's the same as having a deduction on my taxes vs. paying less taxes, no? The end result on what I pay is the same.
Which is why I think that tax free status on "investments that range from stocks and bonds to California wine vineyards" does count as being similar to a subsidy on the for-profit equivalent.
Which is why I see this as a policy question - is it better to have one person with a "better" education at a private school, or use the same money to have two people receive a college education at a public school?
I don't dismiss your point regarding past evidence. However, I think that's symptomatic of a different structural failure, where the cult of hiring MBAs running something "like a business" has taken over schools, health care, government and other organizations which should not have the high rate of failures seen in businesses. (Eg, Cooper Union.) That topic is quite outside of this discussion, and I'm willing to accept your conclusion.
Regarding "looking at the contents of someone else's bank account and wishing it was yours" - that's a wealth tax, and it exists in France, Norway, Spain, and several other countries, so it does make sense to some.
> If Harvard were taxed, would it still provide better education?
To fewer people, and in particular to fewer non-wealthy people, most likely. That money has to come from somewhere.
> Which is why I see this as a policy question - is it better to have one person with a "better" education at a private school, or use the same money to have two people receive a college education at a public school?
Sure, it's a policy question. That does not automatically make it government business; that policy has already been made by the people who decided to donate their funds to a private university rather than to some other cause. I don't favor the Darth Vader approach to government policymaking ("I am altering the deal; pray I don't alter it any further").
We have a set of tax laws about non-profits. If we're going to poke holes in those laws to collect more money, we should not do so while listening to arguments about where the money would be "better" spent, unless it is to be put into a special untouchable budget for only those purposes. Laws that say "we'll collect these funds for this purpose" fall flat when the budget doesn't work that way; the funds spent are not in any way tied to the funds collected, nor are the two kept connected in future laws.
> I don't dismiss your point regarding past evidence. However, I think that's symptomatic of a different structural failure, where the cult of hiring MBAs running something "like a business" has taken over schools, health care, government and other organizations which should not have the high rate of failures seen in businesses.
"like a business" seems to only get used when convenient, and discarded otherwise. When people talk about wanting to keep extra money in the budget when returning it, they talk about running the government like a business, and saving the funds for future expenses. Yet governments people have no problem spending more money than they have, and either raising taxes to cover the difference or simply going into debt.
> Regarding "looking at the contents of someone else's bank account and wishing it was yours" - that's a wealth tax, and it exists in France, Norway, Spain, and several other countries, so it does make sense to some.
Yes, some other governments have an even more entitled attitude over other people's money. That doesn't make it right. The justifications used for wealth taxes are even more tenuous than those used to justify income taxes.
Might does not make right. And getting half of voters to agree to take money from the other half is tantamount to rustling up a mob to take what they feel entitled to, but with more diffusion of responsibility.
"Sure, it's a policy question. That does not automatically make it government business"
We grant something non-profit status because we think it's in the public interest. Thus, it's already 'government business.'
"We have a set of tax laws about non-profits."
Certainly. And we change those laws over time to reflect changing circumstances.
"Yet governments people have no problem spending more money than they have"
That blanket statement is as true as the statement that companies have no problem spending more money than they have. I mentioned Cooper Union as an example of how non-profit universities are also not immune.
> Certainly. And we change those laws over time to reflect changing circumstances.
Which would be quite different from the article's positioning that acts entitled to that money in the first place. But at that point, it would be reasonable to ask why such a change should target non-profit educational institutions in particular, rather than non-profits in general. (Obvious answer: because that would be wildly unpopular, and would threaten some of the primary organizations that non-profit laws were created for, which have enormous lobbying power.)
> That blanket statement is as true as the statement that companies have no problem spending more money than they have.
And those companies doing so typically go out of business, which is strong encouragement not to do that. Government departments have no such controls or requirements in place to enforce fiscal responsibility; when they spend more than they have, they still get more to spend in the future. And lo and behold, they often demonstrate extreme fiscal irresponsibility.
> I mentioned Cooper Union as an example of how non-profit universities are also not immune.
And they very nearly went under due to (as far as I can tell) epic mismanagement, yes. Mismanagement occurs in many places. It's worse when it happens with other people's voluntarily donated money, and even worse when it happens with taxes.
> Who am I likely to believe more, you or Piketty?
I'm hardly the first or only person to argue against what is commonly euphemized "wealth redistribution" on moral/ethical grounds. Whether you're inclined to believe those arguments depends rather heavily on your political beliefs and morals, as it's a question not solely decidable based on economics. Sounds like you've already made up your mind that "wealth redistribution" is acceptable to you, which is a political viewpoint, not solely an economic one.
I would expect that if governments had the same fiscal responsibility as businesses then they would have about the same failure rates.
The failure rate in companies that end up with the investors losing money or some other form of debt is, what, 30%? (Number is from 'Redefining Business Success: Distinguishing Between Closure and Failure', Headd (2003)).
If governments had the same failure rate as businesses we would be up in arms. Yes, some city governments are bankrupt, but it's not true that even 10% of them are failures. http://www.governing.com/gov-data/municipal-cities-counties-... says it's more like 1:2000.
That is not a sign of 'extreme fiscal irresponsibility'.
"Sounds like you've already made up your mind that "wealth redistribution" is acceptable to you, which is a political viewpoint, not solely an economic one."
You make it sound like political viewpoints should not be a consideration.
The existence of non-profit status, the choice of what can be non-profit, and the rules that apply (eg, the 5 percent payout requirement for foundations) also also influenced by politics.
Since you appear to support special non-profit status for schools, you and I are in agreement that political views are indeed an important aspect of this discussion. I therefore don't understand why your comment is useful.
> If governments had the same failure rate as businesses we would be up in arms.
So governments should take less risks, and in particular incur even less debt.
> That is not a sign of 'extreme fiscal irresponsibility'.
I'm not talking about failure rates, I'm talking about utter failure to spend within means, or even recognize a boundary of means.
> You make it sound like political viewpoints should not be a consideration.
Not at all; rather, I was suggesting that citing one economist to support a political viewpoint doesn't make that viewpoint right, and in particular doesn't provide any evidence whatsoever about whether that viewpoint is ethically right.
> Since you appear to support special non-profit status for schools
I wasn't taking a stance on that here; rather, I was suggesting that it doesn't make sense to specifically call out private universities for consideration of revoking that status, without broader consideration of non-profits in general, simply to prop up public universities. More specifically, I was complaining about the entitled stance taken in the article.
My comments are a reply to your earlier statement "Looking at tax you wish you could collect but have no legal right to and salivating over it makes as much sense as looking at the contents of someone else's bank account and wishing it was yours."
I pointed out that there are countries where this is a legal right, and where there are people who believe it makes sense. (With the proviso that it appears to contribute to capital flight, so requires a global wealth tax; which Picketty believes is more Utopian than politically achievable.)
Certainly the utility of such a law is up for debate, but your starting position was that the idea was beyond the pale, which is not correct.
"it doesn't make sense to specifically call out private universities for consideration of revoking that status, without broader consideration of non-profits in general"
Page 2 of the commentary does consider that point. I quote:
> A tax like Schneider’s would still raise other philosophical and logistical questions. For starters, why tax giant endowments at colleges but not other nonprofits? The Metropolitan Museum of Art in New York commands a roughly $3 billion endowment—it’s hard to think of a coherent reason why it should escape the Internal Revenue Service if, say, Fordham University in the Bronx (endowment: $675 million) can’t.
It then mentions two other difficulties with the idea ("why take a cut of wealth from colleges when we don’t do it to individuals?" and "unintended consequences").
It may not cover it in the depth you want, but that's hardly reason to say that it doesn't consider non-profits in general.
> With the proviso that it appears to contribute to capital flight, so requires a global wealth tax; which Picketty believes is more Utopian than politically achievable.
Or perhaps it's not politically achievable specifically because there are enough people who would consider it dystopian instead, which is precisely why those people would "contribute to capital flight" if such a tax was passed.
> Certainly the utility of such a law is up for debate, but your starting position was that the idea was beyond the pale, which is not correct.
I find it "beyond the pale" that what to do with other people's money is "up for debate" by anyone. My position remains that taxing an endowment is at least as unacceptable as taxing wealth in general (which, fortunately, there's significant opposition to), if not even more so because the endowment is intended specifically for charitable purposes.
Harvard waives fees altogether for families making less than $65,000. More than 60% of US households have income less than that+, yet only 20% of Harvard's undergraduate class pays no fees. From this we reasonably say that Harvard is mostly a school for rich kids, despite its generosity to those non-rich kids it lets in. In this way it is similar to elite private high schools in NYC or boarding schools in New England (both of which still send many students).
+This in not quite the correct referent class, as you'd want households with an 18 year old rather than all households. Still I'd be suprised if it was too far off.
>yet only 20% of Harvard's undergraduate class pays no fees
Unfortunately I think this is mostly an issue of exposure. It is probably harder for most Andover Academy students to get into an Ivy than it would be for a similar student from a rural school, but most rural students don't know that. If the guidance counselors at high schools educated their students about their options many more of them would likely apply to top tier schools.
Why would it be harder for a student from an elite boarding school to get into an Ivy than someone from a rural school? I would say the opposite, in no small part based on the evidence that at least supports a strong correlation.
These schools value variety (or diversity, if you prefer) in their classes. They could fill up entirely with valedictorians from NYC, or with rowers from New England boarding schools, or with some other well-represented population, if they so chose, because every single member of those populations applies to one or more Ivies. Because they get very few applicants from farming communities, the rural South, Indian reservations, etc., those who do apply might get in with less impressive SAT scores or "extracurricular activities" than well-represented groups.
If this is news to you, I suspect you haven't thought much about these issues.
It's a little disingenuous to say it's easier though. Sure if you had someone with the same SAT scores, fencing prowess, IB classes, who also spent the summer prior to her senior year interning at the ACLU and was born and raised on Indian reservation in South Dakota she'd have a much easier time getting into Harvard than a wealthy student with a similar record who went to Phillips Exeter. But to put it mildly it would be far more difficult to build such a record for the former than the latter.
The Ivy League has fencing as a D1 sport (except for men's fencing at Cornell which is club). Those eight schools make up about a third of the entire NCAA division.
Under the rule of the league they can't give out athletic scholarships, but they can, and do, recruit athletes and subject to a less rigorous admissions process.
OP said "...than it would be for a similar student from a rural school", and you and I both responded to that. We're not talking about average students, in either context. I don't think Harvard or anybody would care to see IB, interning, or posh sports on the app from South Dakota so long as they see a dedicated, talented student who will thrive at university and challenge her classmates.
> Harvard waives fees altogether for families making less than $65,000. More than 60% of US households have income less than that+, yet only 20% of Harvard's undergraduate class pays no fees. From this we reasonably say that Harvard is mostly a school for rich kids, despite its generosity to those non-rich kids it lets in.
This argument is backwards. Harvard has a need-blind admission policy, which means that admissions decisions are judged solely on merits.
The reason that kids from the > 60% of households with incomes below that threshold don't go to Harvard isn't because of Harvard's admission policies, it's because the college preparatory system heavily favors families with higher wealth.
Having a need blind admission policy doesn't mean that admission decisions are judged solely on the merits. For example, what is meritorious about having a parent that went to Harvard?
The number 6 you mention is schools that are need blind and meet full need for both US and International Students.
Most well-known universities are need blind and meet full need for US students, and partially support international students. Which I think makes perfect sense.
> I'd rather see us start to question the "non-profit" status of lots of hospitals that pay their management some seriously hefty salaries.
Why? The salaries are taxed. (And salaries are a tax-deductible business expense even for non-exempt organizations.)
Tax-exempt non-profit status (while they are many subtypes with different qualifications) is mainly (in terms of the common feature of that status) about whether anyone has a claim on the retained earnings, not whether large salaries are paid.
(Charity status within the larger tax-exempt non-profit category -- charities, in addition to being tax-exempt, have contributions that are tax-deductible for the contributor -- is largely about serving one of a set of defined "charitable purposes".)
There is a lot of anecdotal evidence that some non-profit hospitals misuse their tax-advantaged status to benefit a very select group of individuals at the top of the management hierarchy.
Again, if the states managed their money better, they wouldn't need to try and take the money that these educational institutions have amassed to secure their own mission. These schools manage their endowments very well because it's the only thing that provides them a measure of security in a very uncertain world.
We should not be looking for new ways to hand politicians money. They've done a decidedly poor job thus far with the funds they've been entrusted with.
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.
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.
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.
Harvard does this to maintain it's rankings not because there operating a charity. If the goal is to educate people with tax payer money giving lot's of it to a private group who then goes and spends a tiny fraction of that educating high achieving poor people is a ridiculously inefficient use of public funds.
>Harvard does this to maintain its rankings not because they're operating a charity
I disagree. I'm not saying that the tax exemptions are the best or justified or anything, but Harvard has consistently been one of a few leaders in financial aid, dragging other schools with them. Harvard could have excellent rankings regardless of financial aid, but provides great financial aid to get the best students. When such a small fraction of the money comes from tuition, it just doesn't make sense to try to squeeze every last penny out of tuition and force less wealthy students out in the process.
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.
I came from a middle class suburb outside Atlanta, and I had no clue where Stanford even was. Couldn't even have told you the state. I'd heard of it (mostly the physics program), but no idea what they were all about. I applied to top engineering schools, but at the time I wouldn't have put Stanford in the top 10.
I'd have been wrong, but I didn't know anyone who went there or even applied there, which counts for a lot. MIT, the Ivies, sure. Cal Tech and even Harvey Mudd. But not Stanford. No doubt it was a regional thing at the time, and it may well have changed by now.
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.
> 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.
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.
What's the difference between me giving you $X and me ever so generously not taking $X from your bank account?
Also note the phrase "non-profit". This isn't a benefit we give to everyone; you have to have a registered non-profit that works towards some charitable cause (such as, in this case, giving people a free or low-cost education). If you want to argue that non-profit organizations should not exist, or argue for more constraints on the definition of public benefit, feel free; the article likely didn't because that would garner a lot less sympathy than disingenuously equating non-profits to picking the government's pocket at the expense of taxpayers.
Now, that said, I do have a fair bit of sympathy for the idea of limiting the granting of non-profit status, as well as many tax deductions, but only in conjunction with drastically reducing taxes for everyone. Non-profit status and tax deductions would matter a lot less if everyone paid an order of magnitude less in taxes across the board, and then we could eliminate the administrative overhead of tracking all of those things.
The difference between your two scenarios is that in one scenario I have $X more than in the other scenario.
In my two scenarios, the money you have at the end is the same for both.
As for "If you want to argue," I'm not arguing anything. I'm asking what the difference is between a direct subsidy and a tax exemption, as the comment I replied to is complaining about the author conflating the two.
The article counts tax exemptions as "subsidies." The comment I'm replying to calls this "disturbing." Therefore I'm asking what the difference actually is between a tax exemption and a more overt subsidy.
For an example, let's say you'd normally pay $1 million in taxes. I could subsidize you by paying you $500,000. Or I could give you a tax exemption worth $500,000. The net result on your finances is the same. So I'm wondering what mhb sees as being the difference between the two, such that it's "disturbing" to mix them up.
That's because you're being unnecessarily obtuse. It's fairly obvious what the difference is between not being compelled by the government to give $500,000 you have earned, and being given $500,000 worth of taxpayer money.
So you say. But if the net result is the same, then is there any actual difference, or just ideologues being upset because they want people to think of them differently?
> For an example, let's say you'd normally pay $1 million in taxes.
There's the problematic assumption. As stated in my previous post, the public universities receiving taxpayer funds aren't paying taxes either. So the article compares universities paying no taxes and receiving no taxpayer funds with universities paying no taxes and receiving taxpayer funds. And then they try to skew the comparison by equating "taxes we could get if we took away non-profit status" with "taxes we already take from taxpayers and pay out". The amounts might both be denominated in dollars, but the payer and payee are materially different.
Among other things, consider that people donate and make endowments to public universities as well. (Oddly enough, this never causes those universities to ask for less taxpayer funds.)
For that matter, raiding a non-profit's coffers won't lower everyone else's taxes by the funds raised.
The difference making the comparison somewhat more "disturbing" is an appearance of entitlement: making the comparison implies an entitlement to take those funds, subject only to a decision to take them.
It's not an assumption, it's just fact. Normally you pay taxes on this stuff, but if you can register as an exempt non-profit as Harvard has, then you don't. That has the same effect as subsidizing Harvard by the amount they would pay in taxes.
For the rest of your post, you seem to assume I'm holding some position or making some argument about the merits of the situation, which I'm not. I'm just trying to find out what the supposed difference is between a tax exemption and a subsidy. I am in no way attempting to tie such things to Harvard's status being good or bad, or indeed make any sort of political argument at all.
You seem to be selectively ignoring the portions of my comments that you don't wish to respond to, even when they directly answer the question you're repeatedly asking. Re-posting and adding emphasis:
There's the problematic assumption. As stated in my previous post, the public universities receiving taxpayer funds aren't paying taxes either. So the article compares universities paying no taxes and receiving no taxpayer funds with universities paying no taxes and receiving taxpayer funds.
(And the article also doesn't say anything about how such a policy change to non-profit tax law would tax the charitable foundations attached to existing taxpayer-funded universities as well, probably because that story doesn't play as well as targeting Harvard. Assuming those foundations don't get special-cased, because a law targeting only private universities plays better with voters, too.)
Separate from that, you could make an argument about the total amounts each university spends per student, or their efficiency, but that's not the argument the article makes. Instead, it presents an argument resting on the highly entitled assumption that all the money is there to be spent as decided by those making policy, without questioning or calling attention to that assumption.
That's exactly the kind of argument I'd expect from an outrage-driven medium, but not one I would give any credence to.
You're asking why people find that comparison "disturbing", but ignoring when people tell you that they find it disturbing because it demonstrates a position of entitlement.
The answer is that there's a difference between raising taxes and decreasing expenses, but since the former looks bad (especially when applied to a non-profit) and the latter looks good, the article spins it to look like the latter.
As for the rest of your argument:
> That has the same effect as subsidizing Harvard by the amount they would pay in taxes.
No, it doesn't. With accounting tricks, you might see it the same way on the balance sheet (though even then "lack of outbound payment" should look quite different from "inbound payment"). One might legitimately choose not to spend taxpayer money paying Harvard to educate students, or at the very least spend no more than the amount spent per student at taxpayer-funded institutions. (And we could have a separate argument about whether to spend that money and how much.) But that's not the decision to be made here; that's the decision policymakers might prefer to make, but not the one they have before them. Instead, the decision is whether to take away a university's non-profit status and tax money they earned for themselves to put it to another purpose. Or, in effect, to raise taxes on a particular class of non-profit institutions (from 0% to some non-zero amount).
And once properly framed as a question about taking away a university's non-profit status and thus raising their taxes, one could then ask why such a policy targets universities in particular rather than other non-profit institutions. Perhaps someone thinks money donated to the Red Cross or to cancer research would be better spent on government-provided healthcare? Step one, don't frame it as taking away the non-profit status of a charitable organization, spin it as that organization already generously getting a government tax subsidy that we'd like to decrease.
In both cases, the net result is that you're raising taxes, but making it look like you're decreasing expenses instead.
I'm ignoring the portions of your comments that don't pertain to my question.
You seem to be under the impression that I'm taking a position on many things, when I'm not. At most I'm taking a single position: a tax exemption is in practice no different from a subsidy. And even that I'm putting in the form of a question because I admit I might be missing something.
Beyond that, I'm not making any statements. Policy changes? Treatment of public universities? The potential costs or benefits of taking away Harvard's status? All completely irrelevant to what I asked, and as far as I can tell based on the idea that I asked the question as some sort of submarine argument against tax breaks for Harvard and against private institutions of higher education, or something.
> I'm ignoring the portions of your comments that don't pertain to my question.
To answer to your question yet again: "the net result is that you're raising taxes, but making it look like you're decreasing expenses instead." Removing a tax exemption is a tax increase, and granting one is a tax decrease; paying collected funds out is an expense, and not doing so removes an expense. They're on opposite sides of the balance sheet, and there's a meaningful difference between them even if the balance sheet adds up to the same value.
See previous comments for a more detailed explanation for why the way the article applies that particular spin comes across as "disturbing", which is what you specifically asked for an explanation of. You're not going to get an apolitical answer to that question, because it's a political question.
"Because it's a political question" sounds to me like a roundabout way of saying that there is no actual difference, and it's just "disturbing" because the wording you're against disagrees with your particular ideology in some way.
You're being either intentionally or unintentionally obtuse, and I think anyone who is inclined to actually seek and hear an answer to your question already has it.
The entire point was the spin being used by the article. It doesn't matter if the result would be the same, because this branch of the discussion was never about the result, but the positioning/spin.
I certainly hope that your value function has terms in it for more than just "how much money changes hands at the end of the day"; the ethics used to lay claim to that money matter rather more.
I'm not being obtuse, I legitimately don't understand what the supposed difference is and nobody will tell me because everyone responding to me would rather grind their axe than just give me a friggin explanation.
I finally see a little glimmer of one here, though. The difference is an ethical one, apparently! OK, some progress. What exactly is the ethical difference between the two?
Note that I have no axe to grind here; I'm trying to give an explanation, and feeling like that explanation is hitting some filter that makes it get treated like noise. (I can understand tuning out politics or philosophy; I generally try to as well, especially the former. But this is a fundamentally political/ethical question, and it can't be evaluated in isolation in pure economic terms. Or, at least, choosing to ignore everything but the pure economic terms is itself a political/ethical position.)
Forget, for a moment, the number at the bottom of the balance sheet at the end of the day. While I'm a fan of consequentialism (which it seems like you're using as the motivation for asking about equivalence), I consider misleading argumentative tactics to get there unethical in and of themselves. People should be very careful using rhetoric or deception even to enact positive change or produce net-positive consequences. And it's safe to say that the change advocated for here is at the very least not unambiguously positive.
But in any case, the number at the bottom of the balance sheet isn't the only one that matters here.
There's a certain tendency to privilege the status quo, both for invalid reasons (sunk costs fallacy, etc) and legitimate reasons (change has a cost to implement, and frequent change can cause inefficiency). So, as an argumentative tactic, it may be in the best interests of someone attempting to make a change to make it seem like the status quo already, and perhaps instead argue that there's some special circumstance or loophole that's being closed.
Ask people how they feel about raising taxes. Then ask people how they feel about the government spending less money. Even though both change the bottom line of the government budget in the same direction, the former will elicit far more negative responses, and the latter will elicit far more positive responses. And that's not just cognitive bias talking, either (though that likely plays a part too); there's a legitimate semantic difference there. Raising taxes means the government is claiming domain over more resources. Spending less means the government is taking funds it already stakes a claim over and spending less of them. The former makes the government larger (in that it controls more money and passes more money through its budget), while the latter makes the government smaller (in that it controls less money and passes less money through its budget). This obviously intersects with politics (large/small government, and the role of government in general), but even without that, there exists a semantic difference between deleting an expense and collecting a tax.
Let's stop there for a moment; does that semantic difference make sense, without further complication?
Now, as an added complication in this case, we're talking about non-profit organizations, so there's a second semantic quibble there. However, it's not as if non-profit organizations pay tax and then get it all back as a subsidy. They pay 0% tax to begin with. So, again, in terms of government budget size, the hypothetical taxes that would be paid by a non-profit if they were not a non-profit are not part of the bottom line. That then directly gets into the positioning by the article. The amount given to taxpayer-funded universities consists of actual tax funds, collected from taxpayers, included in the government budget, and paid out to universities. The amount of hypothetical tax revenue that would be collected from a non-profit if they were not a non-profit, on the other hand, was never collected in the first place, is not part of the government budget, and does not contribute to the size and purview of the government.
In terms of the number you can look at to see the difference, look at total government revenue and expenses. (Which, I would argue, should be equal, but that's a...
The difference between raising taxes and cutting spending in general are enormous. Money gets shuffled around, economic activity changes, different people lose their jobs, etc. You don't need politics or ethics to see the difference there. Yes, the government's balance sheet has the same number at the end in both cases, but everybody else's are massively changed.
When you then cut it down to only look at non-profit organizations, and their taxes, all of that goes away. The outcomes in both cases are now identical in every respect.
As far as "claiming domain," and such that sounds like typical loaded-words meaningless politics to me. If the only difference between giving a non-profit a tax exemption and giving that non-profit a subsidy of the same amount is "claiming domain" then there is no actual difference.
> The difference between raising taxes and cutting spending in general are enormous. Money gets shuffled around, economic activity changes, different people lose their jobs, etc. You don't need politics or ethics to see the difference there. Yes, the government's balance sheet has the same number at the end in both cases, but everybody else's are massively changed.
OK, glad we could at least get that far. I wasn't sure we would.
> When you then cut it down to only look at non-profit organizations, and their taxes, all of that goes away. The outcomes in both cases are now identical in every respect.
It's still exactly the same difference between raising taxes and cutting spending.
> If the only difference between giving a non-profit a tax exemption
And here we have the problem. The non-profit already pays 0% tax. Their hypothetical taxes if they were not a non-profit aren't part of the budget in the first place; they don't get counted on the books as incoming taxes and a subsequent payout. Taking away their tax exemption would be raising taxes. Whereas taking away a subsidy given to another organization would be cutting spending. You already acknowledged a difference between raising taxes and cutting spending. Done.
And if you continue to dismiss anything you don't care to hear about as "meaningless politics", you're never going to get why people find some things "disturbing". But I no longer particularly care, either.
"You already acknowledged a difference between raising taxes and cutting spending. Done."
OK, clearly you're not interested in actually paying the least bit attention to what I'm saying, and your complaints about "ignoring arguments" are just projection. Sheesh.
mikeash I think you were really patient here. Any economist would agree you are correct that there is no practical difference except perhaps electoral spin. JoshT appears to be either trolling or trying really hard to make a point that has nothing to do with your question. I have nothing against his point, I'm not a big fan of taxes either, but it was clear about ten posts ago that he isn't really responding to you. I think anybody reading this finds it clear so, again, bonus points for your patience!
No kidding. "And since bestowing tax exemptions is the same as spending cash from the government’s perspective". I physically shuddered as I read that.
The authors entire argument falls apart right there.
How is that wrong? The government decided not to tax these college endowments because they were considered a public good. That decision had a direct effect on the government's budget - a cost.
Indeed that's true. A government in a country which decides to absorb all wealth created by its citizens (100% taxation) would bear a cost should it allow any dispensation. I guess there'd be a powerful debate on whether the latter was justified and fair.
Not the same thing here. The rich people already pay their share in tax that supports public education that they don't benefit from. The people who go to public education don't pay anything more.
Now the author is arguing that the rich people needs to pay more tax because they pay for their own education by going to a private school? That doesn't make sense to me.
It depends on how you define a 'fair share'. In my mind, it's defined as everyone making the same amount of sacrifice.
Equal sacrifice does not mean an equal amount of money; $1K is much more of a sacrifice for someone with $10K than for someone with $10 million. It does not mean the same percentage of tax; again, 20% of your income is a much larger sacrifice if you make $10K than if you make $10 million.
> The rich people already pay their share ...
I'm not sure we can say that without first defining their share? Maybe they are paying less or more than their share.
> public education that they don't benefit from
I disagree strongly. The wealthy have benefitted much more from public services than everyone else, including from education. Could you imagine a country without education? Without public education who would be their employees? Who would be their customers? Their vendors? Who would provide the endless network of services on which our economy and their wealth is built, from banking to research to roads to the political and legal systems to security to technology ... Even the wealthiest have built only a tiny edifice on a massive foundation built by our predecessors, and are wholly dependant on our contemporaries.
Furthermore they focus on per student numbers when a lot of the work done at private universities is graduate education and research work. Comparing based solely on the tax advantage / # of undergrads doesn't capture the difference in what the schools do.
That's how most economists view a tax exemption. An exemption means that ordinarily, this entity would be taxed, but because it is deemed to be special in some way, they get an exemption. From the perspective of an economist, that's money the government is giving up, which is no different than paying that money out.
This was my biggest problem with the article, he also goes on to compare direct funding for public university vs tax breaks on the private university, but completely ignores that public universities ALSO have endowments which are also not taxed, and should also be factored into the equation. Obviously Harvard's still shadows everyone else, but he isn't comparing apples to apples.
For instance, the school with the second largest endowment? University of Texas $25 billion.
"completely ignores that public universities ALSO have endowments which are also not taxed, and should also be factored into the equation"
About 2/3rds of the way through the first page, the author addresses not only that topic, but even references the endowment of the University of Texas system. I quote:
> More substantively, Schneider and Klor de Alva’s report probably exaggerates the overall subsidy gap between elite private and state colleges to a degree. For instance, it doesn’t count the tax savings that some large state institutions enjoy on their own endowments—the University of Texas at Austin, for instance, is part of a nine-school system with a $25.4 billion endowment, while Rutgers has more than $900 million to its name. The study also doesn’t consider subsidies from the federal Pell grant program, which mostly benefit lower- and middle-income students at public institutions. And, perhaps most importantly, it probably overstates how much money colleges are saving thanks to their nonprofit status each year, because it treats all increases in the value of their endowments as taxable income, whether or not they were actually realized.
In the context of competition, tax exemptions are de facto subsidies. If my company has an ETR of 10% and yours would be the same if it weren't for the 50% reduction you got, you can underprice me by a few points and still have a higher profit all other things being equal.
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.
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.
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.
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.
Except the Harvard endowment isn't "sitting" on it -- it's not hidden in some extra-long twin mattress somewhere. Harvard invests that money in a variety of places, including with a number of the large venture capital firms that make the Valley go round. The VCs then hand that money to entrepreneurs, who make (sometimes) useful new products. It works in part because Harvard has a 25+ year time horizon for its investments -- it can fund a startup today and not worry about liquidity for a decade. Harvard's bet is that in a decade, the next Uber will IPO and Harvard will get its funds back, plus a return. As a nice side-effect, entrepreneurs get funded, companies get built, etc.
TL;DR: Investing is not "sitting on" money -- it funds other useful activities.
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?
"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.
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.
You don't have to treat universities and churches the same., the tax code specifically defines which organizations are tax exempt. Churches and universities are "501(c)(3) organizations", i.e. "Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office."
You can just amend that law to delete "educational", which would remove the tax exemption for universities, but keep it for churches.
It is already the case that there are organizations which don't pay out dividends to owners (so they are "non-profit"), but which are not tax-exempt. One example which has been discussed on Hacker News is foundations set up to accept donations in order to fund development of open-source software.
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'".
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.
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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[ 4.7 ms ] story [ 175 ms ] threadI 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
[2] https://admission.princeton.edu/financialaid
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?
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.)
Who is "you"? Certainly not someone who expected to ever extract cash from their hedge fund in order to make it part of their income for that year.
Now you might say the school is a lavish club for students and faculty, but who benefits from that? Not the donors. If they're wealthy, they've got far more efficient spending options to enjoy marble floors and leather sofas.
As long as all the funds went towards the chartered goals of the non-profit, it would look like a really good idea for sustainable funding.
I don't see any reasonable basis on which the article's comparison makes sense. They compared the tax not paid by a registered non-profit with tax funds taken from taxpayers and spent on public universities, such that if someone doesn't pay . Apples and oranges. To look at it another way, the private university provides what most people consider a "better" education without receiving any public funds; clearly we need more such institutions if possible.
Apart from that, based on past evidence, collecting such taxes would not replace taxes collected from others to support a tax decrease; rather, it would just increase the total size of the budget.
Looking at tax you wish you could collect but have no legal right to and salivating over it makes as much sense as looking at the contents of someone else's bank account and wishing it was yours.
If Harvard were taxed, would it still provide better education?
For accounting purposes, what's the difference between the non-profit status and a subsidy on the equivalent service provided by a for-profit company? Because I don't see a difference. It's the same as having a deduction on my taxes vs. paying less taxes, no? The end result on what I pay is the same.
Which is why I think that tax free status on "investments that range from stocks and bonds to California wine vineyards" does count as being similar to a subsidy on the for-profit equivalent.
Which is why I see this as a policy question - is it better to have one person with a "better" education at a private school, or use the same money to have two people receive a college education at a public school?
I don't dismiss your point regarding past evidence. However, I think that's symptomatic of a different structural failure, where the cult of hiring MBAs running something "like a business" has taken over schools, health care, government and other organizations which should not have the high rate of failures seen in businesses. (Eg, Cooper Union.) That topic is quite outside of this discussion, and I'm willing to accept your conclusion.
Regarding "looking at the contents of someone else's bank account and wishing it was yours" - that's a wealth tax, and it exists in France, Norway, Spain, and several other countries, so it does make sense to some.
To fewer people, and in particular to fewer non-wealthy people, most likely. That money has to come from somewhere.
> Which is why I see this as a policy question - is it better to have one person with a "better" education at a private school, or use the same money to have two people receive a college education at a public school?
Sure, it's a policy question. That does not automatically make it government business; that policy has already been made by the people who decided to donate their funds to a private university rather than to some other cause. I don't favor the Darth Vader approach to government policymaking ("I am altering the deal; pray I don't alter it any further").
We have a set of tax laws about non-profits. If we're going to poke holes in those laws to collect more money, we should not do so while listening to arguments about where the money would be "better" spent, unless it is to be put into a special untouchable budget for only those purposes. Laws that say "we'll collect these funds for this purpose" fall flat when the budget doesn't work that way; the funds spent are not in any way tied to the funds collected, nor are the two kept connected in future laws.
> I don't dismiss your point regarding past evidence. However, I think that's symptomatic of a different structural failure, where the cult of hiring MBAs running something "like a business" has taken over schools, health care, government and other organizations which should not have the high rate of failures seen in businesses.
"like a business" seems to only get used when convenient, and discarded otherwise. When people talk about wanting to keep extra money in the budget when returning it, they talk about running the government like a business, and saving the funds for future expenses. Yet governments people have no problem spending more money than they have, and either raising taxes to cover the difference or simply going into debt.
> Regarding "looking at the contents of someone else's bank account and wishing it was yours" - that's a wealth tax, and it exists in France, Norway, Spain, and several other countries, so it does make sense to some.
Yes, some other governments have an even more entitled attitude over other people's money. That doesn't make it right. The justifications used for wealth taxes are even more tenuous than those used to justify income taxes.
Might does not make right. And getting half of voters to agree to take money from the other half is tantamount to rustling up a mob to take what they feel entitled to, but with more diffusion of responsibility.
We grant something non-profit status because we think it's in the public interest. Thus, it's already 'government business.'
"We have a set of tax laws about non-profits."
Certainly. And we change those laws over time to reflect changing circumstances.
"Yet governments people have no problem spending more money than they have"
That blanket statement is as true as the statement that companies have no problem spending more money than they have. I mentioned Cooper Union as an example of how non-profit universities are also not immune.
"That doesn't make it right."
Who am I likely to believe more, you or Piketty?
Which would be quite different from the article's positioning that acts entitled to that money in the first place. But at that point, it would be reasonable to ask why such a change should target non-profit educational institutions in particular, rather than non-profits in general. (Obvious answer: because that would be wildly unpopular, and would threaten some of the primary organizations that non-profit laws were created for, which have enormous lobbying power.)
> That blanket statement is as true as the statement that companies have no problem spending more money than they have.
And those companies doing so typically go out of business, which is strong encouragement not to do that. Government departments have no such controls or requirements in place to enforce fiscal responsibility; when they spend more than they have, they still get more to spend in the future. And lo and behold, they often demonstrate extreme fiscal irresponsibility.
> I mentioned Cooper Union as an example of how non-profit universities are also not immune.
And they very nearly went under due to (as far as I can tell) epic mismanagement, yes. Mismanagement occurs in many places. It's worse when it happens with other people's voluntarily donated money, and even worse when it happens with taxes.
> Who am I likely to believe more, you or Piketty?
I'm hardly the first or only person to argue against what is commonly euphemized "wealth redistribution" on moral/ethical grounds. Whether you're inclined to believe those arguments depends rather heavily on your political beliefs and morals, as it's a question not solely decidable based on economics. Sounds like you've already made up your mind that "wealth redistribution" is acceptable to you, which is a political viewpoint, not solely an economic one.
I would expect that if governments had the same fiscal responsibility as businesses then they would have about the same failure rates.
The failure rate in companies that end up with the investors losing money or some other form of debt is, what, 30%? (Number is from 'Redefining Business Success: Distinguishing Between Closure and Failure', Headd (2003)).
If governments had the same failure rate as businesses we would be up in arms. Yes, some city governments are bankrupt, but it's not true that even 10% of them are failures. http://www.governing.com/gov-data/municipal-cities-counties-... says it's more like 1:2000.
That is not a sign of 'extreme fiscal irresponsibility'.
"Sounds like you've already made up your mind that "wealth redistribution" is acceptable to you, which is a political viewpoint, not solely an economic one."
You make it sound like political viewpoints should not be a consideration.
The existence of non-profit status, the choice of what can be non-profit, and the rules that apply (eg, the 5 percent payout requirement for foundations) also also influenced by politics.
Since you appear to support special non-profit status for schools, you and I are in agreement that political views are indeed an important aspect of this discussion. I therefore don't understand why your comment is useful.
So governments should take less risks, and in particular incur even less debt.
> That is not a sign of 'extreme fiscal irresponsibility'.
I'm not talking about failure rates, I'm talking about utter failure to spend within means, or even recognize a boundary of means.
> You make it sound like political viewpoints should not be a consideration.
Not at all; rather, I was suggesting that citing one economist to support a political viewpoint doesn't make that viewpoint right, and in particular doesn't provide any evidence whatsoever about whether that viewpoint is ethically right.
> Since you appear to support special non-profit status for schools
I wasn't taking a stance on that here; rather, I was suggesting that it doesn't make sense to specifically call out private universities for consideration of revoking that status, without broader consideration of non-profits in general, simply to prop up public universities. More specifically, I was complaining about the entitled stance taken in the article.
My comments are a reply to your earlier statement "Looking at tax you wish you could collect but have no legal right to and salivating over it makes as much sense as looking at the contents of someone else's bank account and wishing it was yours."
I pointed out that there are countries where this is a legal right, and where there are people who believe it makes sense. (With the proviso that it appears to contribute to capital flight, so requires a global wealth tax; which Picketty believes is more Utopian than politically achievable.)
Certainly the utility of such a law is up for debate, but your starting position was that the idea was beyond the pale, which is not correct.
"it doesn't make sense to specifically call out private universities for consideration of revoking that status, without broader consideration of non-profits in general"
Page 2 of the commentary does consider that point. I quote:
> A tax like Schneider’s would still raise other philosophical and logistical questions. For starters, why tax giant endowments at colleges but not other nonprofits? The Metropolitan Museum of Art in New York commands a roughly $3 billion endowment—it’s hard to think of a coherent reason why it should escape the Internal Revenue Service if, say, Fordham University in the Bronx (endowment: $675 million) can’t.
It then mentions two other difficulties with the idea ("why take a cut of wealth from colleges when we don’t do it to individuals?" and "unintended consequences").
It may not cover it in the depth you want, but that's hardly reason to say that it doesn't consider non-profits in general.
Or perhaps it's not politically achievable specifically because there are enough people who would consider it dystopian instead, which is precisely why those people would "contribute to capital flight" if such a tax was passed.
> Certainly the utility of such a law is up for debate, but your starting position was that the idea was beyond the pale, which is not correct.
I find it "beyond the pale" that what to do with other people's money is "up for debate" by anyone. My position remains that taxing an endowment is at least as unacceptable as taxing wealth in general (which, fortunately, there's significant opposition to), if not even more so because the endowment is intended specifically for charitable purposes.
Since I live in Cambridge, I care very much how much gets fenced into official Harvard only property.
+This in not quite the correct referent class, as you'd want households with an 18 year old rather than all households. Still I'd be suprised if it was too far off.
Unfortunately I think this is mostly an issue of exposure. It is probably harder for most Andover Academy students to get into an Ivy than it would be for a similar student from a rural school, but most rural students don't know that. If the guidance counselors at high schools educated their students about their options many more of them would likely apply to top tier schools.
If this is news to you, I suspect you haven't thought much about these issues.
I'm admittedly unfamiliar with Ivy League culture. What does fencing have to do with your application?
Under the rule of the league they can't give out athletic scholarships, but they can, and do, recruit athletes and subject to a less rigorous admissions process.
This argument is backwards. Harvard has a need-blind admission policy, which means that admissions decisions are judged solely on merits.
The reason that kids from the > 60% of households with incomes below that threshold don't go to Harvard isn't because of Harvard's admission policies, it's because the college preparatory system heavily favors families with higher wealth.
Most well-known universities are need blind and meet full need for US students, and partially support international students. Which I think makes perfect sense.
I'd rather see us start to question the "non-profit" status of lots of hospitals that pay their management some seriously hefty salaries.
http://www.modernhealthcare.com/article/20140809/MAGAZINE/30...
Why? The salaries are taxed. (And salaries are a tax-deductible business expense even for non-exempt organizations.)
Tax-exempt non-profit status (while they are many subtypes with different qualifications) is mainly (in terms of the common feature of that status) about whether anyone has a claim on the retained earnings, not whether large salaries are paid.
(Charity status within the larger tax-exempt non-profit category -- charities, in addition to being tax-exempt, have contributions that are tax-deductible for the contributor -- is largely about serving one of a set of defined "charitable purposes".)
Again, if the states managed their money better, they wouldn't need to try and take the money that these educational institutions have amassed to secure their own mission. These schools manage their endowments very well because it's the only thing that provides them a measure of security in a very uncertain world.
We should not be looking for new ways to hand politicians money. They've done a decidedly poor job thus far with the funds they've been entrusted with.
Why anyone would get so money hungry as to attack them is beyond me.
As far as I know, enrollment at Harvard and most other elite institutions skews heavily toward wealthy people.
I disagree. I'm not saying that the tax exemptions are the best or justified or anything, but Harvard has consistently been one of a few leaders in financial aid, dragging other schools with them. Harvard could have excellent rankings regardless of financial aid, but provides great financial aid to get the best students. When such a small fraction of the money comes from tuition, it just doesn't make sense to try to squeeze every last penny out of tuition and force less wealthy students out in the process.
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.
I'd have been wrong, but I didn't know anyone who went there or even applied there, which counts for a lot. MIT, the Ivies, sure. Cal Tech and even Harvey Mudd. But not Stanford. No doubt it was a regional thing at the time, and it may well have changed by now.
>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.
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.
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.
Another is that this isn't zero sum.
Also note the phrase "non-profit". This isn't a benefit we give to everyone; you have to have a registered non-profit that works towards some charitable cause (such as, in this case, giving people a free or low-cost education). If you want to argue that non-profit organizations should not exist, or argue for more constraints on the definition of public benefit, feel free; the article likely didn't because that would garner a lot less sympathy than disingenuously equating non-profits to picking the government's pocket at the expense of taxpayers.
Now, that said, I do have a fair bit of sympathy for the idea of limiting the granting of non-profit status, as well as many tax deductions, but only in conjunction with drastically reducing taxes for everyone. Non-profit status and tax deductions would matter a lot less if everyone paid an order of magnitude less in taxes across the board, and then we could eliminate the administrative overhead of tracking all of those things.
In my two scenarios, the money you have at the end is the same for both.
As for "If you want to argue," I'm not arguing anything. I'm asking what the difference is between a direct subsidy and a tax exemption, as the comment I replied to is complaining about the author conflating the two.
How do you figure? Could you elaborate on the baseline assumptions you're making there?
Note that the universities getting paid tax money collected from taxpayers don't pay taxes themselves either.
For an example, let's say you'd normally pay $1 million in taxes. I could subsidize you by paying you $500,000. Or I could give you a tax exemption worth $500,000. The net result on your finances is the same. So I'm wondering what mhb sees as being the difference between the two, such that it's "disturbing" to mix them up.
There's the problematic assumption. As stated in my previous post, the public universities receiving taxpayer funds aren't paying taxes either. So the article compares universities paying no taxes and receiving no taxpayer funds with universities paying no taxes and receiving taxpayer funds. And then they try to skew the comparison by equating "taxes we could get if we took away non-profit status" with "taxes we already take from taxpayers and pay out". The amounts might both be denominated in dollars, but the payer and payee are materially different.
Among other things, consider that people donate and make endowments to public universities as well. (Oddly enough, this never causes those universities to ask for less taxpayer funds.)
For that matter, raiding a non-profit's coffers won't lower everyone else's taxes by the funds raised.
The difference making the comparison somewhat more "disturbing" is an appearance of entitlement: making the comparison implies an entitlement to take those funds, subject only to a decision to take them.
For the rest of your post, you seem to assume I'm holding some position or making some argument about the merits of the situation, which I'm not. I'm just trying to find out what the supposed difference is between a tax exemption and a subsidy. I am in no way attempting to tie such things to Harvard's status being good or bad, or indeed make any sort of political argument at all.
There's the problematic assumption. As stated in my previous post, the public universities receiving taxpayer funds aren't paying taxes either. So the article compares universities paying no taxes and receiving no taxpayer funds with universities paying no taxes and receiving taxpayer funds.
(And the article also doesn't say anything about how such a policy change to non-profit tax law would tax the charitable foundations attached to existing taxpayer-funded universities as well, probably because that story doesn't play as well as targeting Harvard. Assuming those foundations don't get special-cased, because a law targeting only private universities plays better with voters, too.)
Separate from that, you could make an argument about the total amounts each university spends per student, or their efficiency, but that's not the argument the article makes. Instead, it presents an argument resting on the highly entitled assumption that all the money is there to be spent as decided by those making policy, without questioning or calling attention to that assumption.
That's exactly the kind of argument I'd expect from an outrage-driven medium, but not one I would give any credence to.
You're asking why people find that comparison "disturbing", but ignoring when people tell you that they find it disturbing because it demonstrates a position of entitlement.
The answer is that there's a difference between raising taxes and decreasing expenses, but since the former looks bad (especially when applied to a non-profit) and the latter looks good, the article spins it to look like the latter.
As for the rest of your argument:
> That has the same effect as subsidizing Harvard by the amount they would pay in taxes.
No, it doesn't. With accounting tricks, you might see it the same way on the balance sheet (though even then "lack of outbound payment" should look quite different from "inbound payment"). One might legitimately choose not to spend taxpayer money paying Harvard to educate students, or at the very least spend no more than the amount spent per student at taxpayer-funded institutions. (And we could have a separate argument about whether to spend that money and how much.) But that's not the decision to be made here; that's the decision policymakers might prefer to make, but not the one they have before them. Instead, the decision is whether to take away a university's non-profit status and tax money they earned for themselves to put it to another purpose. Or, in effect, to raise taxes on a particular class of non-profit institutions (from 0% to some non-zero amount).
And once properly framed as a question about taking away a university's non-profit status and thus raising their taxes, one could then ask why such a policy targets universities in particular rather than other non-profit institutions. Perhaps someone thinks money donated to the Red Cross or to cancer research would be better spent on government-provided healthcare? Step one, don't frame it as taking away the non-profit status of a charitable organization, spin it as that organization already generously getting a government tax subsidy that we'd like to decrease.
In both cases, the net result is that you're raising taxes, but making it look like you're decreasing expenses instead.
You seem to be under the impression that I'm taking a position on many things, when I'm not. At most I'm taking a single position: a tax exemption is in practice no different from a subsidy. And even that I'm putting in the form of a question because I admit I might be missing something.
Beyond that, I'm not making any statements. Policy changes? Treatment of public universities? The potential costs or benefits of taking away Harvard's status? All completely irrelevant to what I asked, and as far as I can tell based on the idea that I asked the question as some sort of submarine argument against tax breaks for Harvard and against private institutions of higher education, or something.
To answer to your question yet again: "the net result is that you're raising taxes, but making it look like you're decreasing expenses instead." Removing a tax exemption is a tax increase, and granting one is a tax decrease; paying collected funds out is an expense, and not doing so removes an expense. They're on opposite sides of the balance sheet, and there's a meaningful difference between them even if the balance sheet adds up to the same value.
See previous comments for a more detailed explanation for why the way the article applies that particular spin comes across as "disturbing", which is what you specifically asked for an explanation of. You're not going to get an apolitical answer to that question, because it's a political question.
The entire point was the spin being used by the article. It doesn't matter if the result would be the same, because this branch of the discussion was never about the result, but the positioning/spin.
I certainly hope that your value function has terms in it for more than just "how much money changes hands at the end of the day"; the ethics used to lay claim to that money matter rather more.
I finally see a little glimmer of one here, though. The difference is an ethical one, apparently! OK, some progress. What exactly is the ethical difference between the two?
Note that I have no axe to grind here; I'm trying to give an explanation, and feeling like that explanation is hitting some filter that makes it get treated like noise. (I can understand tuning out politics or philosophy; I generally try to as well, especially the former. But this is a fundamentally political/ethical question, and it can't be evaluated in isolation in pure economic terms. Or, at least, choosing to ignore everything but the pure economic terms is itself a political/ethical position.)
Forget, for a moment, the number at the bottom of the balance sheet at the end of the day. While I'm a fan of consequentialism (which it seems like you're using as the motivation for asking about equivalence), I consider misleading argumentative tactics to get there unethical in and of themselves. People should be very careful using rhetoric or deception even to enact positive change or produce net-positive consequences. And it's safe to say that the change advocated for here is at the very least not unambiguously positive.
But in any case, the number at the bottom of the balance sheet isn't the only one that matters here.
There's a certain tendency to privilege the status quo, both for invalid reasons (sunk costs fallacy, etc) and legitimate reasons (change has a cost to implement, and frequent change can cause inefficiency). So, as an argumentative tactic, it may be in the best interests of someone attempting to make a change to make it seem like the status quo already, and perhaps instead argue that there's some special circumstance or loophole that's being closed.
Ask people how they feel about raising taxes. Then ask people how they feel about the government spending less money. Even though both change the bottom line of the government budget in the same direction, the former will elicit far more negative responses, and the latter will elicit far more positive responses. And that's not just cognitive bias talking, either (though that likely plays a part too); there's a legitimate semantic difference there. Raising taxes means the government is claiming domain over more resources. Spending less means the government is taking funds it already stakes a claim over and spending less of them. The former makes the government larger (in that it controls more money and passes more money through its budget), while the latter makes the government smaller (in that it controls less money and passes less money through its budget). This obviously intersects with politics (large/small government, and the role of government in general), but even without that, there exists a semantic difference between deleting an expense and collecting a tax.
Let's stop there for a moment; does that semantic difference make sense, without further complication?
Now, as an added complication in this case, we're talking about non-profit organizations, so there's a second semantic quibble there. However, it's not as if non-profit organizations pay tax and then get it all back as a subsidy. They pay 0% tax to begin with. So, again, in terms of government budget size, the hypothetical taxes that would be paid by a non-profit if they were not a non-profit are not part of the bottom line. That then directly gets into the positioning by the article. The amount given to taxpayer-funded universities consists of actual tax funds, collected from taxpayers, included in the government budget, and paid out to universities. The amount of hypothetical tax revenue that would be collected from a non-profit if they were not a non-profit, on the other hand, was never collected in the first place, is not part of the government budget, and does not contribute to the size and purview of the government.
In terms of the number you can look at to see the difference, look at total government revenue and expenses. (Which, I would argue, should be equal, but that's a...
When you then cut it down to only look at non-profit organizations, and their taxes, all of that goes away. The outcomes in both cases are now identical in every respect.
As far as "claiming domain," and such that sounds like typical loaded-words meaningless politics to me. If the only difference between giving a non-profit a tax exemption and giving that non-profit a subsidy of the same amount is "claiming domain" then there is no actual difference.
OK, glad we could at least get that far. I wasn't sure we would.
> When you then cut it down to only look at non-profit organizations, and their taxes, all of that goes away. The outcomes in both cases are now identical in every respect.
It's still exactly the same difference between raising taxes and cutting spending.
> If the only difference between giving a non-profit a tax exemption
And here we have the problem. The non-profit already pays 0% tax. Their hypothetical taxes if they were not a non-profit aren't part of the budget in the first place; they don't get counted on the books as incoming taxes and a subsequent payout. Taking away their tax exemption would be raising taxes. Whereas taking away a subsidy given to another organization would be cutting spending. You already acknowledged a difference between raising taxes and cutting spending. Done.
And if you continue to dismiss anything you don't care to hear about as "meaningless politics", you're never going to get why people find some things "disturbing". But I no longer particularly care, either.
OK, clearly you're not interested in actually paying the least bit attention to what I'm saying, and your complaints about "ignoring arguments" are just projection. Sheesh.
The authors entire argument falls apart right there.
Why shouldn't everyone pay their share? If I'm paying my share and you aren't paying yours, I'm subsidizing your government services.
Now the author is arguing that the rich people needs to pay more tax because they pay for their own education by going to a private school? That doesn't make sense to me.
Equal sacrifice does not mean an equal amount of money; $1K is much more of a sacrifice for someone with $10K than for someone with $10 million. It does not mean the same percentage of tax; again, 20% of your income is a much larger sacrifice if you make $10K than if you make $10 million.
> The rich people already pay their share ...
I'm not sure we can say that without first defining their share? Maybe they are paying less or more than their share.
> public education that they don't benefit from
I disagree strongly. The wealthy have benefitted much more from public services than everyone else, including from education. Could you imagine a country without education? Without public education who would be their employees? Who would be their customers? Their vendors? Who would provide the endless network of services on which our economy and their wealth is built, from banking to research to roads to the political and legal systems to security to technology ... Even the wealthiest have built only a tiny edifice on a massive foundation built by our predecessors, and are wholly dependant on our contemporaries.
For instance, the school with the second largest endowment? University of Texas $25 billion.
About 2/3rds of the way through the first page, the author addresses not only that topic, but even references the endowment of the University of Texas system. I quote:
> More substantively, Schneider and Klor de Alva’s report probably exaggerates the overall subsidy gap between elite private and state colleges to a degree. For instance, it doesn’t count the tax savings that some large state institutions enjoy on their own endowments—the University of Texas at Austin, for instance, is part of a nine-school system with a $25.4 billion endowment, while Rutgers has more than $900 million to its name. The study also doesn’t consider subsidies from the federal Pell grant program, which mostly benefit lower- and middle-income students at public institutions. And, perhaps most importantly, it probably overstates how much money colleges are saving thanks to their nonprofit status each year, because it treats all increases in the value of their endowments as taxable income, whether or not they were actually realized.
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.
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.
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.
http://www.federalreserve.gov/monetarypolicy/reservereq.htm
Except the Harvard endowment isn't "sitting" on it -- it's not hidden in some extra-long twin mattress somewhere. Harvard invests that money in a variety of places, including with a number of the large venture capital firms that make the Valley go round. The VCs then hand that money to entrepreneurs, who make (sometimes) useful new products. It works in part because Harvard has a 25+ year time horizon for its investments -- it can fund a startup today and not worry about liquidity for a decade. Harvard's bet is that in a decade, the next Uber will IPO and Harvard will get its funds back, plus a return. As a nice side-effect, entrepreneurs get funded, companies get built, etc.
TL;DR: Investing is not "sitting on" money -- it funds other useful activities.
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?
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.
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.
You can just amend that law to delete "educational", which would remove the tax exemption for universities, but keep it for churches.
It is already the case that there are organizations which don't pay out dividends to owners (so they are "non-profit"), but which are not tax-exempt. One example which has been discussed on Hacker News is foundations set up to accept donations in order to fund development of open-source software.
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.