The Untaxed Fat Cats: Universities and Foundations

An interesting opinion appeared at Washington Post, of all places.  Despite their slogan being “Democracy Dies in Darkness”, this article is the rare bit of brightness at that news organ given their bent of shining light only on all things progressive, and casting conservative concerns into the outer darkness. The essay by Henry Olsen is So you want to tax the rich? Okay, let’s start with Harvard.  I am sympathetic to his argument because it is universities and foundations culpable above all in spending to spread so much poison into western civilization, including (among others) critical race theory and climate hysteria.  But would the government do anything different with the money from imposing comparable taxes?  Excerpts in italics with my bolds.

President Biden and congressional Democrats seem determined to raise taxes on the rich, especially the rate paid on capital gains. If they’re really serious about this, there’s one sector of American wealth that is undertaxed even by today’s standards: universities and foundations.

The amount of wealth held by major colleges and large grant-making foundations is astounding. The National Association of College and University Business Officers’ annual study found that 107 institutions held endowments of $1 billion or more as of June 30, 2019. Together, these institutions of higher learning held $494 billion in assets, or roughly a tenth of the total net worth of all individual billionaires in the United States combined. The university figure is surely much higher today.

Charitable foundations hold even more wealth. One estimate found they held more than $1 trillion in assets in 2017, with the richest five alone holding nearly $100 billion between them. Given that the stock market has risen more than 50 percent since then, their portfolios should be hundreds of billions of dollars richer. That means America’s charitable foundations and billionaire universities hold at least $1.5 trillion in assets. That’s far more wealth than that of Jeff Bezos, Bill Gates, Mark Zuckerberg, Elon Musk and the founders of Google and Oracle combined.

Democrats often criticize these billionaires for not paying their fair shares, but they pay a lot more than these wealthy institutions. Rich universities and grant-making foundations pay a mere 1.4 percent in federal taxes on their net investment income, a fraction of the 23.8 percent rich people pay on their capital gains. To put this in perspective, if Gates made $100 million in trading Microsoft stock, he would pay $23.8 million in federal capital gains tax, plus any state income taxes he might owe. If the Bill and Melinda Gates Foundation made the same $100 million trading the same stock, it would pay Uncle Sam a mere $1.4 million.

There’s no reason these billionaire institutions should continue to be exempt from paying normal capital gains rates on their income if the public’s need is so great. Harvard may cry that paying higher taxes on the gains from its nearly $40 billion endowment would force it to crimp spending on student aid or faculty research, but wealthy individuals can make the same argument: Higher taxes would reduce the amount of money they can invest in tech start-ups or other economically productive ventures. Plus, both the wealthy institution and the rich individual have more than enough money to make do and adjust to the higher tax rates, especially if the public spending their taxes would finance is so essential.


Even taxing rich institutions at lower rates would raise considerable revenue for the federal government. Sen. Elizabeth Warren (D-Mass.) recently introduced her Ultra-Millionaire Tax Act, which would levy an annual 3 percent wealth tax on individuals with assets of $1 billion or more. Perhaps not coincidentally, it does not apply to institutions such as the former law professor’s old employer, Harvard University. Had Warren applied the same wealth tax on universities, good old Harvard, which had a $39.4 billion endowment as of 2019, would pay nearly $120 million annually under Warren’s proposal, more than twice the $49.8 million it paid on its net investment income in 2019.

Applying Warren’s tax to the combined fortunes of ultra-rich colleges and foundations would easily raise more than $30 billion a year. That’s not chump change.

Democrats would never take up this charge, especially given how much these institutions skew to the left. Only 3 percent of Harvard’s faculty members, for example, are conservatives compared with almost 78 percent who say they are “liberal” or “very liberal.” Harvard isn’t much of an outlier; a recent study found that registered Democrats at 32 elite colleges and universities outnumber registered Republicans by more than 10 to 1. Foundations also tilt heavily to the left, with clearly left-wing foundations possessing more than 10 times the assets of clearly right-wing institutions. Treating institutional wealth the same as Democrats propose treating individual wealth clearly would harm their friends much more than it would harm their enemies.

That shouldn’t matter, however. Wealth is wealth, and massive accumulations of it should be taxed regardless of the source if the federal government needs the money. If Democrats won’t do that, it shows they care more about professors and foundation fat cats than they do about entrepreneurs. I doubt average Americans agree.


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