Public funds for higher education are hard to find. States have slashed billions from university budgets while the federal government is struggling to keep the Pell Grant program afloat. So it came as a shock when government officials on Saturday announced plans to give $2-billion in taxpayer funds over the next five years to a single private university that mostly educates rich people and already has an endowment bigger than the gross domestic product of Bolivia.
Well, actually, government officials didn’t do the announcing. Harvard University did it for them, by launching a $6.5-billion capital campaign, the largest ever.
Harvard, which has an endowment of more than $30-billion, is a “nonprofit” organization, according to a close, technical reading of the law. That means donations to the campaign are tax-deductible. If we conservatively estimate a 28-percent marginal federal income-tax rate for donors (the top rate is 39.6 percent), and a similar effective rate for corporate donations, that’s $1.8-billion in forgone revenue. State income-tax rates vary from zero to more than 10 percent; assuming 5 percent, on average, yields $325-million more, or $2.1-billion total.
Nominally, that represents a savings for donors. But presumably donors want to give a certain amount of their income to charity. If you reduce the cost of giving by a third via tax preferences, they’ll just increase their donations by that amount. Which means that Harvard is the real beneficiary of those tax expenditures.
One could argue that the money would have gone to some charity, and therefore the cost to the taxpayers is fixed. But I feel comfortable asserting that Harvard exists somewhere on the very outer statistical reaches of the universe of nonprofit organizations in terms of wealth and prestige. The Massachusetts Coalition for the Homeless it ain’t. Which means those tax breaks are being diverted either from government services far more likely to help those in need or from nonprofit services far more likely to help those in need.
Most charitable contributions, moreover, yield no tangible benefit for the donor. Even high-flying social charity balls pay off in mere standing. University donations, by contrast, are a well-understood part of the shadow admissions-preference market. In other words, taxpayers are spending billions subsidizing the process by which members of the One Percent purchase scarce places in the ruling class for their children.
Harvard’s timing is impeccable. The wealthiest Americans have recovered all the money they lost during the Great Recession and then some, while legions of potentates and businessmen worldwide are eager to buy a piece of the elite American dream for their kids. Over the last decade, private universities have separated from their public competitors, ramping up spending and poaching faculty members and students. Now they can run up the score.
Plus they really can’t help themselves. As the former Harvard president Derek Bok once wrote, “Universities share one characteristic with compulsive gamblers and exiled royalty: There is never enough money to satisfy their desires.”
This gross misallocation of public resources will only subside under three scenarios. One, if donating your money to absurdly rich universities becomes socially unacceptable. Two, if the shadow admissions-preference market is abolished, perhaps as part of the emerging framework of legal scrutiny derived from affirmative-action litigation. Or three, if policy makers change the tax code. The hard part there is distinguishing colleges and universities that really are worthy of public subsidy. But the more the rich get richer, the easier that will be.
Kevin Carey is director of the education-policy program at the New America Foundation.
