Many of the modern top ranked universities have been described as a hedge fund with a school attached.
Many schools, most notably Harvard, have enormous endowments beyond any foreseeable needs, and legislation has been proposed in Massachusetts removing the tax exempt status of these bloated funds:
Within a one-mile radius in Cambridge, Massachusetts, sit Harvard University and the Massachusetts Institute of Technology — academic institutions that together boast $74 billion in endowment funds. Based on the size of these “rainy-day funds” alone, the two universities, with a combined student body of 37,000, have enough wealth to rival Ghana, with a population of 35 million.
The kicker? These private universities are educational institutions, meaning that for most of their history, they have been exempt from federal and state income taxes.
Massachusetts lawmakers want to change that. State legislators are considering a groundbreaking bill that would impose a 2.5 percent annual excise tax on private college and university endowments that are larger than $1 billion. The resulting $2.5 billion raised each year would be more than enough to cover the tuition of every undergraduate student currently attending public colleges and universities in the state.
The effort builds on a 2017 federal tax on universities’ investment incomes, and offers a bold new way to tackle elite universities’ hoarding of wealth, an increasing amount of which is being invested in private equity. And since Massachusetts boasts one of the highest concentrations of higher education institutions nationwide, the bill could set precedent for the rest of the country.
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