Thursday, October 12, 2006

More Than $2 Billion Misallocated This Past Week

By Richard Vedder

My new friend and associate Wick Sloane is, with the help of Whiz Kid Jonathan Leirer, doing a great study for CCAP which will be released in the near future. In a draft written a few days ago, he noted that the tax advantages donors to Columbia University receive if it succeeds in its new $4 billion fundraising campaign would fund well over 200,000 Pell Grants.

Yet Stanford has now topped Columbia, announcing a $4.3 billion capital campaign. Suppose both campaigns are successful. Wealthy taxpayers will take over $8 billion in deductions against their gross incomes on their federal income tax forms, which should minimally lower their tax liability by $2 billion. That $2 billion could fund 500,000 Pell Grants at $4,000 apiece (far greater than the average Pell Grant today).

Lay those half-million students end-to-end, they would stretch from Washington, D.C. to nearly Indianapolis. Our tax system rewards the bastions of the elite at the expense of educating the poor.

We are giving huge tax subsidies to wealthy persons who want to make wealthy universities richer, and widen the gap between the haves and have nots in American universities. Should we be giving tax deductions to schools whose annual endowment income is, say $30,000 per student or more? How does this promote higher education access or affordability? What national purpose does it serve? Why should a dollar's gift to Harvard, with $1.6 million in endowment for every student, be encouraged as much by public subsidy as a dollar's gift to my university, with perhaps $10,000 in endowment per student? Or community colleges that have virtually no endowment?

Wick's forthcoming study promises to be provocative and more than a bit infuriating to some in the Higher Education Establishment. So be it. It needs to be said.

5 comments:

Anonymous said...

Richard: I think you should enable the e-mail post on this blog.
There's several people I'd like to read this post.

(Yes, I can e-mail the page. But the Blogger E-mail feature is better for Blogspot websites.)

David said...

1)To the extent that people are making donations with the expectation of preferential treatment for the admission of their kids, I think there is a tax issue that needs to be look into. My understanding is that charitable donations are not supposed to be deductible, to the extent that the donor receives goods or services of value in return.

2)Perhaps we need to re-look at the whole notion of "non-profit organizations." Is it reasonable that a university or charity that pays its President $1 million per year is a tax-exempt non-profit, while a business whose CEO makes $200K in salary and dividends is taxed as a for-profit? Regarding the question of "social value," which is really more important to our society--the hundreds of tax-exempt "think tanks" around DC, or (for example) the Union Pacific Railroad?

TC said...
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TC said...
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Ray J. said...

So you think your schooling's phoney
I guess it's hard not to agree
You say it all depends on money
And who is in your family tree
Right, you're bloody well right
You know you got a right to say
Right, you're bloody well right
You know you got a right to say
Yeah yeah you're bloody well right
You know you're right to say
Yeah yeah you're bloody well right
You know you're right to say
Me, I don't care anyway
Don't care anyway!
You write your problems down in detail
Take them to a higher place
You've had your cry
No I should say wail
In the meantime you hush your face
Right, quite right, you're bloody well right
You know you got a right to say
Right you're bloody well right
You know you got a right to say
Yeah yeah you're bloody well right
You know you're right to say
Yeah yeah you're bloody well right
You know you're right to say