[quote=musicprnt} Not sure what you are getting at here, about obligations to the public because of the tax breaks they get, universities are no different than any other non profit.
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Yes, it’s true, the U.S. tax code gives very generous tax breaks to a broad array of “non-profit” institutions—but it’s not their God-given right. It’s a policy choice. It doesn’t need to be that way, and it’s not just the natural order of things. The questions isn’t “are they entitled to favorable tax treatment under the current Internal Revenue Code?” The answer to that is obvious; of course they are. Instead, the question is what justifies affording them such favorable tax treatment? Economists and tax policy experts who have considered that question have an extremely difficult time coming up with a persuasive answer. Presumably the answer has to be that there’s some public benefit to their activities. But what, exactly, is that public benefit, and is it enough to justify the lavish tax subsidies that the wealthiest of those institutions receive?
Here’s a thoughtful and dispassionate analysis by Henry Hansmann, a highly respected law-and-economics scholar at Yale Law School. Hansmann is no wild-eyed populist. He’s a thoughtful, careful scholar. He examines several possible rationales for tax subsidies for private higher education, and finds them all wanting, but he concludes that change is probably impossible for the foreseeable future for political reasons: too many people have a stake in the present system, and there’s relatively little public sentiment for change.
http://ncpl.law.nyu.edu/zz_resources/documents/HenryHansmann-COLLEGEANDUNIVERSITYEXEMPTION.pdf
Hansmann, by the way, has a straightforward answer to the argument that as non-profits, these institutions have no profits to tax. Our corporate income tax doesn’t tax “profits” per se, it’s a corporate income tax, taxing net corporate income, generally defines as gross income less allowable expenditures. Hansmann says we could tax university endowments the same way: take their annual gross income (new contributions plus interest, dividends, and capital gains) and subtract from that the amount they actually spend from the endowment on providing educational services in the current year. Then we’d be taxing their net income, the same way to tax for-profit corporations. The only reason this isn’t “taxable income” is that the Internal Revenue Code is written in such a way that it’s excluded from the statutory definition of taxable income.
I’m not as sanguine as Hansmann about the wisdom of taxing endowments. But I think it’s worth asking the question, what benefits does the public receive in exchange for this extraordinarily generous tax treatment? And yes, I would ask the same question about churches and other kinds of non-profits as well.
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