The Tax Stops Here

Mass. was wrong to try to fix budget problems by taxing University endowments

The debate over taxation of colleges and universities is longstanding, but last week, Massachusetts did well to prevent the state from gaining ground in taxing schools. The Massachusetts House of Representatives recently stopped an amendment from passing that would have allowed the state to tax universities with endowments larger than $1 billion. This proposed taxation of 2.5 percent would have come with deleterious effects, and it is a relief, therefore, that it did not come to pass. These harmful byproducts could have included the discouragement against donations to the University and the disincentive for universities to make charitable contributions.

More importantly, this sort of amendment would have given life to the practice of the state penalizing monetarily successful universities—namely Harvard—for being just that. Only eight schools in Massachusetts have endowments over $1 billion: Harvard, MIT, Williams, Boston College, Amherst, Wellesley, Tufts, and Boston University. But with a $34.9 billion endowment, Harvard would see the greatest payout by far. The university with the next-largest endowment, MIT, has $9.98 billion.

This sort of tariff would undoubtedly hurt schools’ fundraising programs: If donors knew that the money they bequeathed to their alma mater would partially or fully be heading to the state (or push the target college or university over the $1 billion mark), they would think twice before writing that check. While the donations that some of these schools receive are more than just hefty, the amount of money schools would be required to give under this tax would often be even greater. For example, under this law, Harvard would have to pay $875 million dollars of its current $34.9 billion endowment, which dwarfs the recent generous donation of $100 million from David Rockefeller ’36. Although other Massachusetts schools don’t boast as large an endowment as Harvard, they would still suffer under this law. MIT’s endowment is close to $10 billion, which would force them still to pay $247 million dollars to Beacon Hill.

Beyond the financial concerns inherent in this plan lie its ideological inconsistencies with the missions of institutions of higher learning. Colleges and universities have missions that commit them to serve and better the community, callings that shouldn’t be reduced to assuage the problems the state government can’t handle. Perhaps this proposal would have been more amenable if the money taken by the state went directly to struggling non-profit organizations around the Commonwealth or other salutary areas. The fact that this revenue mechanism would have only been one of many recent ploys to help the government’s economic problems (like casinos are) then the justification loses all merit. Universities across the country, regardless of endowment size, should not be taxed. Universities already are boons to the economy: Harvard alone is the number one employer in Cambridge, and schools produce thousands of graduates who are educated and ready to make a difference.

Harvard, and its wealthy peer institutions should use some of the money that they have rightfully generated to give back to the communities that host them. There is nothing wrong, and much to be lauded, about donating some of their sizable endowments for philanthropic purposes. Where this amendment falters is its attempted use of University funds to bolster faltering state programs. Gifts and contributions to Massachusetts should be University-driven and not muddled by the bureaucracy and mandate of the state.