12.12.17

WHEN HIGHER EDUCATION BREAKS THE SOCIAL CONTRACT.

That's a central element of Richard Vedder and Justin Strehle's Case for Taxing College Endowments.
There are two good reasons why the endowment tax makes sense to some politicians. First, public attitudes toward universities have distinctly soured in recent years. What the public perceives as outrageous student behavior, feckless university leadership, and excessive tuition fees has combined with a growing hostility by Republican lawmakers angered over the large political donations and public criticism that academics have made attempting to oust them from office. Lawmakers are growing tired of feeding the mouths that bite them. Revenues raised by taxing colleges can modestly help fund other tax reductions that lawmakers want to make, which are probably economically beneficial to the well over 90 percent of the population living outside the Ivory Towers of Academia.

Second, our econometric examination of college endowments suggests a large portion of endowment income is dissipated in relatively unproductive fashions, financing a growing army of relatively well-paid university administrators and giving influential faculty low teaching loads and high salaries. We estimate that roughly only about 15 cents out of each additional dollar of endowment income goes to lower net tuition fees (published tuition fees—sticker prices– are much higher at highly endowed schools, but those schools also give more scholarship aid). When a newly endowed scholarship is created, schools typically either reduce their student aid support from other funds or raise sticker prices to capture some of the newly funded endowment resources for other purposes.
I've been fighting with Business as Usual along lines suggested in the first paragraph for years: no surprise there.  The second paragraph, referring to empirical work not otherwise cited or acknowledged in their essay, raises the unsurprising point that money is fungible.

Continuing, though, perhaps taxing endowments is another way of reducing the regressive transfers inherent in higher education as currently understood.
A healthy portion of [endowment returns and other subsidies] are used to provide higher salaries or other perks such as hiring lots of new administrative assistants such as more assistant deans, “sustainability coordinators” or “diversity officers” to perform irksome jobs or meet politically correct objectives such as fighting global warming or achieving the optimal skin colorization of the students and faculty. As endowments rise, so do full professor salaries and the numbers of professors serving a given number of students. To a considerable extent, endowments are a successful rent-seeking scam of the power brokers within universities.

At public universities, subsidies are provided by state governments that usually are less than $1,000 a student but are occasionally higher. The five highest state appropriation levels per student among the 13 public Big Ten universities range between $10,000 and $15,000, equal to the amount that would be provided by an endowment of $250,000 per student where the annual spending rate is four to six percent of the endowment principal. Thus, the GOP excise tax on endowments takes effect only at institutions where endowment spending is generally well above the public subsidies provided at state universities.
Now, if we could get the land-grants and mid-majors to recognize that they are in the same business as the Ivies, and turf out all the irksome special education impedimenta that keep U.S. News selling those ratings ...

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