Phi Beta Cons

The Feds’ University Tax Policies: Their Limits and Beyond

Richard Vedder, founder of the Center for College Affordability & Productivity, is the best in the business when it comes to market-based reform of higher education. Witness his latest disquisition, “Federal Tax Policy Regarding Universities: Endowments and Beyond,” to be downloaded here.

Vedder argues persuasively that forcing an endowment-spending rule on Harvard would heat up “the academic arms race,” that is, motivate “Harvard wannabes” — the “Slippery Rock colleges of the world” — to waste more on non-academic amenities.
And he zeroes in on the fiscal consequences of the favorable tax treatment of campuses, concluding that their wealth has shot up faster than the general growth of population, income and wealth, and (more explosively) that there is ample reason “for the government to impose conditions on institutions accepting tax-exempt funds.”
Yet Vedder prudently recognizes the limitations of altering such policies and implicitly acknowledges that market-based solutions are not enough to reverse higher education’s profound decay. So he repeatedly returns to how “the underlying theoretical premises justifying massive government subsidies are flawed” and warns against exaggerating the impact of changes in endowment or taxation policies.
Although Vedder’s main focus is the debilitating nature of the non-profit character of universities and their excessive reliance on third-party payments, he never loses sight of the academy’s high purpose of “advancing instruction or the frontiers of knowledge.” Nor does he neglect the practical means by which this end can be advanced, namely, by far better “measuring” academic outcomes.
Another tour de force, Dr. Vedder.


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