Yale University is sitting on an endowment worth $25.6 billion. The state of Connecticut, on the other hand, is pretty broke. Now, Connecticut wants to tax Yale’s endowment. This could be more revolutionary than it sounds.
University endowments are exempt from taxes, for the same rationale that exempts museums and cultural institutions from taxes. They are nonprofits that are good for society, and whatnot. By not taxing them, we, as a society, essentially subsidize them as institutions. This is not a bad rationale, at least in the abstract. But like many things, there is a point at which it veers into the absurd. At $25.6 billion, Yale’s endowment may have reached that point.
Twenty five billion dollars. This ain’t the Little Sisters of Perpetual Poverty Preschool for the Poor, over here.
Connecticut lawmakers are proposing a tax only on state schools with endowments over $10 billion, which is to say, only Yale. It is unclear whether such a tax would survive a legal challenge. Morally and politically, though, it certainly has the potential to be justifiable, at a time when public schools in the state are relatively impoverished.
In Slate last year, Jordan Weissmann wrote a good overview of the pluses and minuses of taxing these sorts of huge endowments. On the plus side, they can fucking afford it, and the per-student tax subsidies that we offer our nation’s richest universities amount to far more than what states spend on each student in their own public state universities, which seems like an insane skewing of public priorities. On the minus side, even advocates have to admit that taxing the endowments of rich school is a wildly arbitrary project in a nation that doesn’t even really tax the wealth of rich individuals. And, of course, the schools themselves argue that their huge endowments are the result of proper planning to prevent piss poor performance, a quality that should be rewarded rather than penalized.
It is true that schools need endowments if they are to run properly. It is also true that, at a certain size, even the staunchest Ivy League partisan must admit that the schools are thoroughly well-funded. It is not hard to see the dangers of opening the door for feckless politicians to raid the coffers of any well-managed nonprofit whenever they mismanage the public coffers. It is also not hard to see the dangers of publicly subsidizing (by not taxing) institutions that exist primarily to educate the rich and powerful while the majority of students at public schools get crumbs.
Perhaps the most prudent course of action is just to dangle the threat of taxing endowments over the head of rich universities in order to extort on-time payments to the state as necessary. Protection money to the masses. Indulgences for the sins of greed.
In any case, Fuck Yale.