This is a joke, and @Iglooo tax payers are not losing out or paying for the money donated, tax free money is given a cap, so that not all of their money can be protected in a loophole, plus they aren’t even putting it in 401k accounts that count as untaxed income(you probably owe(by your logic) the government like 120,000 if you have around 300k in yours). Schools that are non for profit don’t gain wealth in any special way, and the roads aren’t paved with gold. They use the money to make grants and scholarships and give students the best education possible.
College of blah blah and blah blah state university do not deserve a cut of the money since they were not given it. It would be a joke to think that any of the endowment from Harvard be shared with UMASS Amherst. Private schools hoard the wealth because they create the Wealth, have successful alum, have strong donations from said alum. If public schools pumped out millionaires like private schools did, then they would not have an issue.
Saying for private schools to stop hoarding wealth is like telling them to stop hoarding the smart kids or crying about how a b student can’t get into harvard.
@pizzagirl, it’s ideal. It is not going to happen. The issue is complicated. Who wouldn’t want to support higher education and the arts?
I don’t think UChicsgo or the MFA should be subsidized. At least not to the extent they are subsidized. If the Pritzker family wants to donate, great. The family doesn’t need a tax subsidy.
We have limited resources.
I find it interestiing that a school that believes in free markets, the home of Milton Friedman’s ideology, is so heavily subsidized.
Not necessarily, Hanna. A non-profit can easily re-grant unrestricted donations as long as it is within the nonprofit’s charter/mission to do so. United Way, for example, does it all the time, as do private universities. They can establish research ‘collaborations’ with other top Unis and publish the results.
If the donors want to specify, perhaps we don’t give the deduction, the difference going in a general FA pot (that Congress will raid for not FA of course).
It is not a stretch to call it subsidizing. Very wealthy people give, and take a deduction that saves them about 40% of the amount in taxes.
The college’s don’t pay tax on endowment income, whereas a normal corporation would at 35%. And @ToBeHonestt companies that hoard the wealth bc the create the wealth are taxed at 35% all day long…
Yes, we do get to pick and choose who gets a deduction and what is tax exempt. It’s the law, and it can be changed by Congress.
Are private universities so much more efficient? Or do they just escape public scurtiny. Harvard with endowment 37 billions and annual fund raising at 1 billion last year effectively received 400 million plus tax free earnings on 37 billions of about 2.4 billion assuming 6% return. That amounts to almost 2 billion dollars tax benefit. Is there any public university that receive that much tax money? Wouldn’t you think any university with that kind of income would look run well? Also note Havard is much smaller than any public university.
Of course, all nonprofits should be treated the same be that art, education, religion, or guns.
That’s great. I am sure they wouldn’t mind paying the tax instead of taking advantage of tax deductions.
What we are talking about here is the algorithm used to calculate one’s tax bill. Saying the federal government “subsidizes” charitable donations by choosing not to include donations in the calculation causes the word to lose all practical meaning. That would imply the government is “subsidizing” everyone who uses a mortgage to buy a house, every local government who charges property tax, or engages in any kind of tax-deductible activity.
These deductions have been in place for years, and government budgets are set accordingly. If the government isn’t raising enough money, all Congress has to do is adjust the tax rate tables. It’s not as if parts of the government are at risk of being shut down because some rich guy chooses to donate money to his favorite college, and therefore that years tax revenues are lower than expected.
Perhaps instead of taxing the endowment, eliminate the up-front tax deduction for charitable contributions?? If I recall, this was the early recommendation of the Treasury I proposal back in the Dark Ages under Pres. Reagan.
Per Bank Rate Monitor:
"Americans are by and large a giving bunch. IRS preliminary data from the 2012 tax year show that more than 33 million taxpayers claimed charitable deductions when they itemized on Schedule A. Donations can be cash, which in the IRS’ eyes means money, checks or charges to credit cards. Or the gifts can be household goods, vehicles, appreciated assets or even the calculation of miles driven in doing charitable work.
These various gifts to qualified organizations – for which the donor should have receipts in case the IRS has questions about the gift – help reduce taxpayers’ taxable income, which means lower tax bills.
The donations also mean less money for Uncle Sam. Between 2014 and 2018, this deduction for gifts to qualifying nonprofits will mean the U.S. Treasury will be out an estimated $192 billion. Uncle Sam’s losses increase when you add in another nearly $34 billion for donations to educational institutions and almost $26 billion given to health-focused organizations."
“In the midst of public debates on fairness, tax rates, and debt reduction, there is a fallacy, deliberately promoted by some, that undermines honest discourse. It is this: private charitable contributions should be classified and treated as “public money.” If allowed to perpetuate, this bait and switch could lead to real and negative consequences for every charitable organization and donation made in this country.”
@NUwildcat92 whether you define a tax break as a subsidy or not generally depends on whether you agree with it. Subsidies are provided in the tax code in many many ways. Not just deductions, but also tax credits to encourage behavior, and refundable credits to give a taxpayer a refund of tax they never actually paid.
If you agree with it, you likely will not call it a subsidy. However, every deduction and credit has a “cost” to the federal budget that is measured at the point it is added to the Code. This is considered the “cost” of the provision. Other expenditures must be cut or taxes raised to pay for them (or we run a deficit, which we do).
The fact that a deduction has been on the books longer than you have been alive does not mean there is no cost to the budget.
I would not want Congress to actually change this in reality bc they would just spend the “expected revenue” from it on something else, not FA!
“A non-profit can easily re-grant unrestricted donations as long as it is within the nonprofit’s charter/mission to do so.”
Yes, but the vast majority of donations are restricted, and Northwestern handing money to Northeastern Illinois U. wouldn’t fall within Northwestern’s mission anyway. The authors in the OP aren’t talking about collaborating on joint research projects. They propose the private Us “sharing their assets”; i.e., writing a check.
I understand what you are saying, and yes–this is largely a matter of semantics. I just see this word (subsidy) tossed around a lot, and to me it is pejorative because it implies that the tax deduction is being directly paid for by other tax payers. If you follow that logic, you could say the top tax rate (39.6%) is a “subsidy” on the wealthy. (How so, you ask? Because the government could claim 50%!)
I don’t understand the logic of this argument. Even in “socialist” Britain, we’ve never sought to re-distribute the income of our wealthy universities. If you want to ensure greater equity, increase government funding across the board. Expend Pell grants both in terms of income limits and size. Replace federal loans with federal grants. Perhaps divert some of the money you spend on defense into higher education.
These aren’t all the subsidies universities receive. For example, Johns Hopkins receives about $1.9 billion a year from the federal government for research. Medical research. Defense research. Etc.
People are allergic to government spending. Have to keep government spending down. Government spends too much.
So…the tax code is used. That way, the words government spending don’t have to be spoken.
The government can go to Boeing and say we will give you a $1 billion dollar grant to build the 767. But that means government spending is increased $1 billion. We can’t do that. Instead, let’s give Boeing a tax credit of $1 billion. That way, our tax receipts decline $1 billion but our government spending stays the same.
The costs are the same.
I am just using Boeing as an example. I don’t know the details but I think Boeing has a negative tax rate over the last several years.
