Is Taxing University Endowments an Idea Whose Time Has Come?

The left has never seen a tax they weren't in favor of, but a recent guest column at the Association of Mature American Citizens (AMAC) - the non-lefist version of the AARP - may have uncovered just such a tax, one that's sure to have the left and, most especially, academics, up in arms.

That tax? A tax on university endowments. The plan has some things going for it, but it may not be that easy to see it done:

House Ways and Means Committee Chairman Jason Smith is suggesting a tax on the $840 billion college endowments. These endowments will soon eclipse $1 trillion in size — more money than the entire GDP of many countries.
It’s high time that bloated and entitled universities pay their fair share for the government services they use.
Why not? Their professors forever lecture us about tax “fairness,” but the schools where they teach a few hours a week for their munificent salaries are the very embodiment of mostly white “privilege.” They are the richest institutions in the world that go untaxed.

Untaxed? Yes, untaxed. Their professors, along with the staff and other faculty, pay personal taxes, sure. But the universities' massive endowments are not taxed, even though they do realize capital gains. Were these private companies, the left would be champing at the bit to tax those gains, but since it's academia - crickets:

There are at least a dozen schools bulging with $10 billion endowments, and scores more with more than $1 billion each. We should call these schools Loophole U.
What public purpose is advanced by these storehouses of wealth?

What purpose, indeed? The students of these schools pay some pretty impressive tuition bills, and many students are subsidized by our tax dollars, if not directly, then through the guise of grants and government-subsidized student loans provided to the young skulls full of mush attending these elite academies. And yet, they have these huge piles of money available and seem to do little with them.

And some of these endowments, yes, are astronomical:

Harvard’s $50 billion-plus endowment is so large that the school could charge free tuition to every student from now until kingdom come — and still not run out of money. Yet Harvard still charges nearly $100,000 a year for tuition and room and board.
But this is the real sin of this unworthy tax loophole. Even with these giant endowments, college tuitions have been rising at two to three times the rate of inflation. The argument that tax-free donations make colleges more affordable has proven to be patently false. The bigger the endowment, the more the schools charge students and their parents — and taxpayers.

The rise of college tuition, of course, is a separate issue, and it's not primarily due to the endowments; it's due to the government guaranteeing student loans and pouring bushels of grant money into the universities that causes this inflation. And yet, the left persists in dealing with this as they deal with every problem--by attempting to drown it in taxpayers' money.

So, what form would a tax like this take?

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If we were to model it after the capital gains tax, which is probably the most likely scenario, then the existing balances in those generous endowments would be untaxed. A new tax scheme would only tax any added increment - any capital gains realized through investments, through gifts, or simply through interest.

If we were to make it, effectively, a wealth tax, that is, a tax on the balance of the endowment, initial revenues would be higher, and given a carefully considered rate, would allow some of that endowment to remain for whatever purpose it might serve. Although, since many of these endowments may as well be a big Scrooge McDuckian swimming pool full of gold coins for all the purpose they serve, the wealth tax option is tempting.

As I hinted earlier, while this might be an idea whose time has come, it may not be an easy one to bring about. This would require legislation, and while many, if not most, Republicans may well support such a scheme, the outcry from the left would be audible in Tierra del Fuego. The GOP would need to have a solid majority in the House and a filibuster-proof majority in the Senate to make this happen, and it would be a tall order even then.

Consider this, though, as a selling point: The left is constantly thumping their narrow chests and shouting about the need for the rich to "pay their fair share." The universities that won these endowments, faced with taxation, may well resort to something the wealthy do to reduce their tax profile: Charitable work.

That's better than letting that swimming pool full of gold coins just sit there and gather dust.