It is disturbing that the author so lightly morphs a tax exemption into a taxpayer subsidy. As if the natural state of things is for the government to tax everything and whatever it doesn't is being subsidized.
Why anyone would get so money hungry as to attack them is beyond me.
As far as I know, enrollment at Harvard and most other elite institutions skews heavily toward wealthy people.
I disagree. I'm not saying that the tax exemptions are the best or justified or anything, but Harvard has consistently been one of a few leaders in financial aid, dragging other schools with them. Harvard could have excellent rankings regardless of financial aid, but provides great financial aid to get the best students. When such a small fraction of the money comes from tuition, it just doesn't make sense to try to squeeze every last penny out of tuition and force less wealthy students out in the process.
And the few who make it fail at much higher rates; from what I recall research points to the fact that colleges are geared toward middle/upper-middle class students, mostly white. The cultural adjustment is huge (remember these are 18 year olds leaving their neighborhoods for the first time) and few adults or peers understand their situation. Also, many have poor support from home, financially and socially; rather than receiving encouragement, they get asked why they are wasting time and money on college.
In effect (and assuming Harvard follows those patterns) Harvard offers aid with the knowledge that few will take it, and without orienting their services to serve the new students. They could do much better. From what I understand, Amherst has gone a long way toward solving these problems.
I'd have been wrong, but I didn't know anyone who went there or even applied there, which counts for a lot. MIT, the Ivies, sure. Cal Tech and even Harvey Mudd. But not Stanford. No doubt it was a regional thing at the time, and it may well have changed by now.
>Amherst has gone a long way toward solving these problems
They have, but I don't think they have a massive lead over Harvard. If I recall correctly, both have similar aid profiles, are giving aid to a similar percentage of their students, have a similar percentage from low-income families, and have a similar percentage of students of color. I believe the graduation rates are also similar. Amherst has been a real leader in this area, so I'm sure there are areas where they're leading Harvard, and please let me know if my memory (or bias) is deceiving me or my information is out of date.
A bit of a tangent: It also depends on how financial aid is defined. Many schools set an arbitrary price that very few students actually pay, the equivalent of a 'manufacturers suggested retail price'. In one NY Times story on this topic, at the school they looked into around 1% (IIRC) paid the MSRP; everyone else got a 'discount', the same trick salespeople have used forever.
I've had people applying to college happily tell me, 'the school offered me $30K in financial aid'. I try to (gently) tell them that it doesn't matter how much 'discount' the school offers, it matters how much they charge you. They can arbitrarily set their 'MSRP' at $100K and give you $80K in 'aid', or set it at $20K and give you no 'aid'; the result is the same.
Another thing to watch out for is schools that say "the MSRP is $50k but we gave you $30k in aid so it's really $20k" when that $30k is loans, not grants. Harvard doesn't use loans (and very few students take them out), but as you go down a few tiers in financial aid that changes rapidly.
Another is that this isn't zero sum.
Also note the phrase "non-profit". This isn't a benefit we give to everyone; you have to have a registered non-profit that works towards some charitable cause (such as, in this case, giving people a free or low-cost education). If you want to argue that non-profit organizations should not exist, or argue for more constraints on the definition of public benefit, feel free; the article likely didn't because that would garner a lot less sympathy than disingenuously equating non-profits to picking the government's pocket at the expense of taxpayers.
Now, that said, I do have a fair bit of sympathy for the idea of limiting the granting of non-profit status, as well as many tax deductions, but only in conjunction with drastically reducing taxes for everyone. Non-profit status and tax deductions would matter a lot less if everyone paid an order of magnitude less in taxes across the board, and then we could eliminate the administrative overhead of tracking all of those things.
In my two scenarios, the money you have at the end is the same for both.
As for "If you want to argue," I'm not arguing anything. I'm asking what the difference is between a direct subsidy and a tax exemption, as the comment I replied to is complaining about the author conflating the two.
How do you figure? Could you elaborate on the baseline assumptions you're making there?
Note that the universities getting paid tax money collected from taxpayers don't pay taxes themselves either.
For an example, let's say you'd normally pay $1 million in taxes. I could subsidize you by paying you $500,000. Or I could give you a tax exemption worth $500,000. The net result on your finances is the same. So I'm wondering what mhb sees as being the difference between the two, such that it's "disturbing" to mix them up.
There's the problematic assumption. As stated in my previous post, the public universities receiving taxpayer funds aren't paying taxes either. So the article compares universities paying no taxes and receiving no taxpayer funds with universities paying no taxes and receiving taxpayer funds. And then they try to skew the comparison by equating "taxes we could get if we took away non-profit status" with "taxes we already take from taxpayers and pay out". The amounts might both be denominated in dollars, but the payer and payee are materially different.
Among other things, consider that people donate and make endowments to public universities as well. (Oddly enough, this never causes those universities to ask for less taxpayer funds.)
For that matter, raiding a non-profit's coffers won't lower everyone else's taxes by the funds raised.
The difference making the comparison somewhat more "disturbing" is an appearance of entitlement: making the comparison implies an entitlement to take those funds, subject only to a decision to take them.
For the rest of your post, you seem to assume I'm holding some position or making some argument about the merits of the situation, which I'm not. I'm just trying to find out what the supposed difference is between a tax exemption and a subsidy. I am in no way attempting to tie such things to Harvard's status being good or bad, or indeed make any sort of political argument at all.
There's the problematic assumption. As stated in my previous post, the public universities receiving taxpayer funds aren't paying taxes either. So the article compares universities paying no taxes and receiving no taxpayer funds with universities paying no taxes and receiving taxpayer funds.
(And the article also doesn't say anything about how such a policy change to non-profit tax law would tax the charitable foundations attached to existing taxpayer-funded universities as well, probably because that story doesn't play as well as targeting Harvard. Assuming those foundations don't get special-cased, because a law targeting only private universities plays better with voters, too.)
Separate from that, you could make an argument about the total amounts each university spends per student, or their efficiency, but that's not the argument the article makes. Instead, it presents an argument resting on the highly entitled assumption that all the money is there to be spent as decided by those making policy, without questioning or calling attention to that assumption.
That's exactly the kind of argument I'd expect from an outrage-driven medium, but not one I would give any credence to.
You're asking why people find that comparison "disturbing", but ignoring when people tell you that they find it disturbing because it demonstrates a position of entitlement.
The answer is that there's a difference between raising taxes and decreasing expenses, but since the former looks bad (especially when applied to a non-profit) and the latter looks good, the article spins it to look like the latter.
As for the rest of your argument:
> That has the same effect as subsidizing Harvard by the amount they would pay in taxes.
No, it doesn't. With accounting tricks, you might see it the same way on the balance sheet (though even then "lack of outbound payment" should look quite different from "inbound payment"). One might legitimately choose not to spend taxpayer money paying Harvard to educate students, or at the very least spend no more than the amount spent per student at taxpayer-funded institutions. (And we could have a separate argument about whether to spend that money and how much.) But that's not the decision to be made here; that's the decision policymakers might prefer to make, but not the one they have before them. Instead, the decision is whether to take away a university's non-profit status and tax money they earned for themselves to put it to another purpose. Or, in effect, to raise taxes on a particular class of non-profit institutions (from 0% to some non-zero amount).
And once properly framed as a question about taking away a university's non-profit status and thus raising their taxes, one could then ask why such a policy targets universities in particular rather than other non-profit institutions. Perhaps someone thinks money donated to the Red Cross or to cancer research would be better spent on government-provided healthcare? Step one, don't frame it as taking away the non-profit status of a charitable organization, spin it as that organization already generously getting a government tax subsidy that we'd like to decrease.
In both cases, the net result is that you're raising taxes, but making it look like you're decreasing expenses instead.
You seem to be under the impression that I'm taking a position on many things, when I'm not. At most I'm taking a single position: a tax exemption is in practice no different from a subsidy. And even that I'm putting in the form of a question because I admit I might be missing something.
Beyond that, I'm not making any statements. Policy changes? Treatment of public universities? The potential costs or benefits of taking away Harvard's status? All completely irrelevant to what I asked, and as far as I can tell based on the idea that I asked the question as some sort of submarine argument against tax breaks for Harvard and against private institutions of higher education, or something.
To answer to your question yet again: "the net result is that you're raising taxes, but making it look like you're decreasing expenses instead." Removing a tax exemption is a tax increase, and granting one is a tax decrease; paying collected funds out is an expense, and not doing so removes an expense. They're on opposite sides of the balance sheet, and there's a meaningful difference between them even if the balance sheet adds up to the same value.
See previous comments for a more detailed explanation for why the way the article applies that particular spin comes across as "disturbing", which is what you specifically asked for an explanation of. You're not going to get an apolitical answer to that question, because it's a political question.
The entire point was the spin being used by the article. It doesn't matter if the result would be the same, because this branch of the discussion was never about the result, but the positioning/spin.
I certainly hope that your value function has terms in it for more than just "how much money changes hands at the end of the day"; the ethics used to lay claim to that money matter rather more.
I finally see a little glimmer of one here, though. The difference is an ethical one, apparently! OK, some progress. What exactly is the ethical difference between the two?
Note that I have no axe to grind here; I'm trying to give an explanation, and feeling like that explanation is hitting some filter that makes it get treated like noise. (I can understand tuning out politics or philosophy; I generally try to as well, especially the former. But this is a fundamentally political/ethical question, and it can't be evaluated in isolation in pure economic terms. Or, at least, choosing to ignore everything but the pure economic terms is itself a political/ethical position.)
Forget, for a moment, the number at the bottom of the balance sheet at the end of the day. While I'm a fan of consequentialism (which it seems like you're using as the motivation for asking about equivalence), I consider misleading argumentative tactics to get there unethical in and of themselves. People should be very careful using rhetoric or deception even to enact positive change or produce net-positive consequences. And it's safe to say that the change advocated for here is at the very least not unambiguously positive.
But in any case, the number at the bottom of the balance sheet isn't the only one that matters here.
There's a certain tendency to privilege the status quo, both for invalid reasons (sunk costs fallacy, etc) and legitimate reasons (change has a cost to implement, and frequent change can cause inefficiency). So, as an argumentative tactic, it may be in the best interests of someone attempting to make a change to make it seem like the status quo already, and perhaps instead argue that there's some special circumstance or loophole that's being closed.
Ask people how they feel about raising taxes. Then ask people how they feel about the government spending less money. Even though both change the bottom line of the government budget in the same direction, the former will elicit far more negative responses, and the latter will elicit far more positive responses. And that's not just cognitive bias talking, either (though that likely plays a part too); there's a legitimate semantic difference there. Raising taxes means the government is claiming domain over more resources. Spending less means the government is taking funds it already stakes a claim over and spending less of them. The former makes the government larger (in that it controls more money and passes more money through its budget), while the latter makes the government smaller (in that it controls less money and passes less money through its budget). This obviously intersects with politics (large/small government, and the role of government in general), but even without that, there exists a semantic difference between deleting an expense and collecting a tax.
Let's stop there for a moment; does that semantic difference make sense, without further complication?
Now, as an added complication in this case, we're talking about non-profit organizations, so there's a second semantic quibble there. However, it's not as if non-profit organizations pay tax and then get it all back as a subsidy. They pay 0% tax to begin with. So, again, in terms of government budget size, the hypothetical taxes that would be paid by a non-profit if they were not a non-profit are not part of the bottom line. That then directly gets into the positioning by the article. The amount given to taxpayer-funded universities consists of actual tax funds, collected from taxpayers, included in the government budget, and paid out to universities. The amount of hypothetical tax revenue that would be collected from a non-profit if they were not a non-profit, on the other hand, was never collected in the first place, is not part of the government budget, and does not contribute to the size and purview of the government.
In terms of the number you can look at to see the difference, look at total government revenue and expenses. (Which, I would argue, should be equal, but that's a separate issue.) Either raising revenue or lowering expenses by a given amount has the same effect on the bottom line, but they have different effects on the nature, size, and purview of government.
When you then cut it down to only look at non-profit organizations, and their taxes, all of that goes away. The outcomes in both cases are now identical in every respect.
As far as "claiming domain," and such that sounds like typical loaded-words meaningless politics to me. If the only difference between giving a non-profit a tax exemption and giving that non-profit a subsidy of the same amount is "claiming domain" then there is no actual difference.
OK, glad we could at least get that far. I wasn't sure we would.
> When you then cut it down to only look at non-profit organizations, and their taxes, all of that goes away. The outcomes in both cases are now identical in every respect.
It's still exactly the same difference between raising taxes and cutting spending.
> If the only difference between giving a non-profit a tax exemption
And here we have the problem. The non-profit already pays 0% tax. Their hypothetical taxes if they were not a non-profit aren't part of the budget in the first place; they don't get counted on the books as incoming taxes and a subsequent payout. Taking away their tax exemption would be raising taxes. Whereas taking away a subsidy given to another organization would be cutting spending. You already acknowledged a difference between raising taxes and cutting spending. Done.
And if you continue to dismiss anything you don't care to hear about as "meaningless politics", you're never going to get why people find some things "disturbing". But I no longer particularly care, either.
OK, clearly you're not interested in actually paying the least bit attention to what I'm saying, and your complaints about "ignoring arguments" are just projection. Sheesh.
The authors entire argument falls apart right there.
For instance, the school with the second largest endowment? University of Texas $25 billion.
About 2/3rds of the way through the first page, the author addresses not only that topic, but even references the endowment of the University of Texas system. I quote:
> More substantively, Schneider and Klor de Alva’s report probably exaggerates the overall subsidy gap between elite private and state colleges to a degree. For instance, it doesn’t count the tax savings that some large state institutions enjoy on their own endowments—the University of Texas at Austin, for instance, is part of a nine-school system with a $25.4 billion endowment, while Rutgers has more than $900 million to its name. The study also doesn’t consider subsidies from the federal Pell grant program, which mostly benefit lower- and middle-income students at public institutions. And, perhaps most importantly, it probably overstates how much money colleges are saving thanks to their nonprofit status each year, because it treats all increases in the value of their endowments as taxable income, whether or not they were actually realized.
Why shouldn't everyone pay their share? If I'm paying my share and you aren't paying yours, I'm subsidizing your government services.
Now the author is arguing that the rich people needs to pay more tax because they pay for their own education by going to a private school? That doesn't make sense to me.
Equal sacrifice does not mean an equal amount of money; $1K is much more of a sacrifice for someone with $10K than for someone with $10 million. It does not mean the same percentage of tax; again, 20% of your income is a much larger sacrifice if you make $10K than if you make $10 million.
> The rich people already pay their share ...
I'm not sure we can say that without first defining their share? Maybe they are paying less or more than their share.
> public education that they don't benefit from
I disagree strongly. The wealthy have benefitted much more from public services than everyone else, including from education. Could you imagine a country without education? Without public education who would be their employees? Who would be their customers? Their vendors? Who would provide the endless network of services on which our economy and their wealth is built, from banking to research to roads to the political and legal systems to security to technology ... Even the wealthiest have built only a tiny edifice on a massive foundation built by our predecessors, and are wholly dependant on our contemporaries.