Comments on: Universities shouldn’t be tax exempt http://blogs.reuters.com/felix-salmon/2013/07/08/universities-shouldnt-be-tax-exempt/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: parzle http://blogs.reuters.com/felix-salmon/2013/07/08/universities-shouldnt-be-tax-exempt/comment-page-1/#comment-49967 Wed, 18 Jun 2014 16:56:13 +0000 http://blogs.reuters.com/felix-salmon/?p=22216#comment-49967 I couldn’t agree more with abolishing property tax exemptions for universities. In a city like mine (ypsilanti, mi) we are only 4 sq miles but majority of it is taken up by EMU. And then when pfizer moved out of ypsilanti guess who bought up that massive building and land… university of michigan. It creates such an overwhelming burden on the local municipalities to raise money to cover even the basic expenses. The result is bleeding homeowners dry in taxes. I pay 4k a year on a home only valued at 115,000. The most painful subsidies come at the cost of the residents where these universities are located.

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By: johnglover http://blogs.reuters.com/felix-salmon/2013/07/08/universities-shouldnt-be-tax-exempt/comment-page-1/#comment-47649 Sun, 14 Jul 2013 13:31:42 +0000 http://blogs.reuters.com/felix-salmon/?p=22216#comment-47649 Cynic seems to think that the government will need to subsidize the University to make up for the lost benefit of taking away their tax exemption.

If the federal tax exemption is worth $32.8 million to Northeastern, that means that it made nearly $100 million in profit. That’s $5,000 per enrollee at the university.

So explain to me, with that level of profit, why does it to be subsidized?

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By: Cynic http://blogs.reuters.com/felix-salmon/2013/07/08/universities-shouldnt-be-tax-exempt/comment-page-1/#comment-47627 Wed, 10 Jul 2013 16:58:41 +0000 http://blogs.reuters.com/felix-salmon/?p=22216#comment-47627 The best study I’ve seen of the value of tax exemptions in higher education was done by the Tellus Institute last fall, as a case study of Northeastern University. Local property tax exemptions were the biggest chunk. But they also tabulated state excise, income, and sales taxes, and federal income and investment income taxes, as well as the indirect subsidy of tax exempt bonds to fund construction. They found that, in 2011, Northeastern’s tax subsidies amounted to $94.4 million – actually outstripping all other governmental support. (All federal research grants, contracts, and federal student aid tallied just $87.33 million.)

Now, Northeastern isn’t exactly poor – most public institutions of higher education would kill for its ~$600m endowment. But that endowment ranks 134th in the United States, so it’s not exactly in the top tier, either. And I would submit that, instead of basing public policy proposals on their impacts on extreme outliers like Harvard and NYU, it probably makes more sense to look at a middle-of-the-pack place like Northeastern.

What would happen if Northeastern were stripped of its tax exemptions? Because if you revoke the federal status, you can be sure that the state recognition will also disappear. First, its local real estate taxes would jump by $38.64 million on an annual basis. That would certainly be a short-term boon to Boston’s municipal finances, but I wouldn’t expect to see the city kick a single dollar back in subsidies. Next, state revenues would jump by $22.92 million. And finally, the Feds would take in another $32.84 million.

So what, exactly, are you proposing here? That the Federal government plow the combined value of the tax exemptions – $94.4 million – back into higher education? That’s an interesting idea. But as a practical matter, the Feds would have to find a way to cover the $60 million difference between their increased revenues and the value of the exemption. If they did, the biggest impact of this scheme would become a massive subvention of funds to support municipal and state finances. Or are you suggesting that the Feds remove subsidies worth $94.4 million, and replace them with new direct funding sources worth only the $32.84 million that they would be saving? That’s a more practical idea, but it’d amount to a massive slashing of funding for higher education.

But of course, the situation created by a targeted repeal of tax exemptions for universities would likely be even more vexing. I’d expect to see private institutions transfer all the assets they can to an affiliated foundation, keeping them sheltered from taxation. Mammoth endowments would be the easiest to shelter; real property would probably be harder, depending on how the laws were written. So the Feds, who tax endowments, would probably have a much harder time actually recapturing all of this potential revenue than local governments, which tax property.

A revenue-neutral scheme sounds tempting in the abstract – and it’s certainly the case that some universities have abused their tax exemptions to indulge in empire building. But in practice, it would either mean massive cuts to higher education, a massive new transfer of federal revenues to state and municipal governments, or some combination of those approaches.

There’s one other problem worth mentioning, and that’s the relative merits of direct and indirect subsidies for universities. We’ve actually run this as something of a controlled experiment. The states fund public universities primarily through direct expenditures; we all subsidize private universities primarily through tax expenditures. Over the last few decades, we’ve seen a progressive defunding of public universities and cost-shifting over to students and families – a trend that has hit the most vulnerable the hardest. Private universities, by contrast, have found their tax expenditures to be extraordinarily stable and reliable, in good times and in bad. So independent of the problems of implementation, I have a tough time buying the notion that a transition to direct expenditures would actually remain ‘revenue neutral.’ That might be the case in year one. But are you building an escalator clause in? It almost doesn’t matter. Direct expenditures aren’t going to increase; they won’t even remain stable in nominal dollars. At the first hint of economic contraction, universities will be a tempting target for austerity, triggering waves of cuts and cost-shifting to students. And the consequences of systematic underinvestment in higher education are far-reaching.

I’m not fond of NYU’s real estate games, either. But I don’t think this is the solution.

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By: Matthew_Saroff http://blogs.reuters.com/felix-salmon/2013/07/08/universities-shouldnt-be-tax-exempt/comment-page-1/#comment-47619 Tue, 09 Jul 2013 20:11:24 +0000 http://blogs.reuters.com/felix-salmon/?p=22216#comment-47619 y2kurtus, your points about stadiums is well made.

Top level athletics at university more closely resembles slaves at the oars of a galley ship than it does education.

Certainly, it the size of Harvard’s endowment is obscene, and proposals (now dead) to tax it are well founded.

One of the problems here is that the top level universities have a pricing oligopoly (Clinton let them get away with it), but, as per classical economic theory, they continued to compete on a non-price basis, hence bidding up academic salaries, gilded dorms, etc.

The real question here is whether the tax exemption better serves the public good than does the tax revenues, and I, and Mr. Salmon, would argue that it does not. (Yes, I know that the same applies to religious institutions, but I oppose tax exemption for them as well)

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By: cmckitterick http://blogs.reuters.com/felix-salmon/2013/07/08/universities-shouldnt-be-tax-exempt/comment-page-1/#comment-47612 Tue, 09 Jul 2013 15:17:51 +0000 http://blogs.reuters.com/felix-salmon/?p=22216#comment-47612 Property taxes are exactly what Felix is talking about, and they can end up being fairly significant. In New Haven, for example, Yale has tax exempt properties whose total assessment runs at about 1-2 billion dollars. With the current mill rates, this works out to be a tax burden of $40-80 million. This is significantly more than the ~$8 million that Yale charitably gives to the city. For a city of 130,000 people, I don’t think you can call that discrepancy overblown.

If universities ended up paying property taxes (and just received subsidies from the government), it might encourage them to limit the purchase of large plots of land and construction of glamorous buildings. Maybe then they could focus more on education.

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By: y2kurtus http://blogs.reuters.com/felix-salmon/2013/07/08/universities-shouldnt-be-tax-exempt/comment-page-1/#comment-47608 Tue, 09 Jul 2013 02:30:29 +0000 http://blogs.reuters.com/felix-salmon/?p=22216#comment-47608 I have no idea what the headline means. Universities generate no net income as a group at all. They get billions in government grants, tuition, all of it spent. The top 10% might get a 10th of their revenue from their endowment income. Only the top 50 or so schools (out of 2,500+/- colleges) make any real endowment income, but again most of that is still spent on lavish campus improvements, football stadiums, and generous faculty and admin salaries.) Unless you’re talking about property taxes there is not a lot to talk about. Even property taxes are overblown… in many towns we force colleges to make a payment in lieu of taxes anyway.

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