Tax the Ivies

R epublicans looking for new sources of revenue to help finance further tax cuts or reduce the deficit are appropriately looking at university endowments. In so doing, they should raise their sights to include large, grantmaking nonprofit foundations.

Large university endowments remain one of the most undertaxed sources of capital in America. Entities such as Harvard and Yale sit on tens of billions of dollars, which they invest in the market just like for-profit entities do.

Yet, they pay only a fraction of the taxes that their private competitors pay. Private companies pay a 21 percent marginal corporate-income-tax rate, and hedge fund investors still pay the relevant capital-gains rate if the funds pass their gains onward.

Universities, however, only face a 1.4 percent marginal rate. Yes, you read that right.

That’s highway robbery — and a big reason why administrative and other non-teaching staff employment has exploded in recent decades.

It’s rich that so many professors at these elite institutions argue for higher taxes on the wealthy while they comfortably cash their paychecks from entities that are among the most tax-protected of any in the nation.

That’s why the Republican tax plan should include Texas Representative Troy Nehls’s Endowment Tax Fairness Act. That bill would raise the marginal tax rate on investment earnings on the endowments at very wealthy colleges and universities to 21 percent — the same rate paid by for-profit corporations.

This would raise a lot of money. The Tax Foundation estimates that it would raise between $70 billion and $112 billion over ten years, depending on the rate of return.

Even that pales in comparison to what could be raised if Nehls’s bill were also applied to large grant-making foundations.

These entities are also tax-favored. Contributions to them are tax-deductible, just like contributions to higher education institutions. And their investment earnings are also subject to the same, ultra-low marginal rate.

Foundations hold significant assets. The largest, the Bill and Melinda Gates Foundation, possessed over $60 billion as of the end of 2022. The 41 largest such entities not dedicated to supporting schools or medical research held a combined $345 billion in assets as of the end of 2022.

That total is certainly much larger today. The S&P 500 stock index increased by over 25 percent in 2023 and 2024. Assuming the foundations’ investment approximated those gains, they may hold nearly $500 billion.

That amount is roughly that of the 50 richest private colleges and universities, the ones likeliest to pay the enhanced endowment tax. We can infer, then, that extending the tax to wealthy grantmaking foundations would raise a roughly similar amount, doubling the total revenue raised to as much as a quarter of a trillion dollars over ten years.

These institutions are mostly as dominated by the Left as are elite universities. George Soros’s Open Society Foundation is on the list, as are liberal stalwarts Bloomberg Philanthropies and the Pew Charitable Trusts, among others.

Some of these groups support local community institutions like museums and schools. The vast majority of their grants, however, are given to left-leaning researchers to advance left-leaning agendas.

Take the Ford Foundation, the third largest with over $16 billion under management. It sponsors programs in “global governance” and “climate justice.” The William and Flora Hewlett Foundation, with over $12 billion in assets, has programs in “gender equity and governance” and “ensuring a sustainable and equitable transition to a low-carbon economy.”

Scratch the surface of many academic leftist programs and you will likely find they garner significant financial backing from one or more of these Left-dominated foundations. The fact that they often advocate for more burdens on the private wealth-creating sectors while hiding behind massive tax subsidies makes their nakedly partisan advocacy even more galling for the Right.

Democrats like to say that millionaires and billionaires should pay their fair share of taxes. Taxing these multibillionaire institutions would simply level the playing field with the private sector, and it should easily be defensible as exacting a “fair share.” But if the GOP does try this, watch how vehemently the Left protests any attempt to do to their friends what they want done to their adversaries.

What’s good for the goose ought to be good for the gander. The nation needs more revenue in ways that won’t harm the economy if it wants to reduce its gargantuan deficit. Taxing the Left’s post-graduate clerisy is a great place to start.