Yo! Congress! How about $10 billion to help balance the 2014 budget, be home for Christmas, and sled off the fiscal cliff another day? All you have to do is your job.
Stop ignoring this $10 billion raid on the U.S. Treasury by colleges and universities. What raid? The annual abuse of nonprofit status whereby colleges and universities use tax-exempt dollars to gorge on luxurious buildings, presidential salaries of $500,000 and more, indoor golf nets, skyboxes at stadiums, and on and on and on. With this $10 billion, be my guest on reducing the deficit or, better, fund 1.8 million new Pell Grants, the federal aid for the nation’s poorest students.
Any of you blinking? I invite you, then, to explain to my 7 a.m. community college students why a skybox or indoor golf nets are a higher national priority than aid for students working 30 and 40 hours a week. I’ll let you explain this to the older woman who works overnight before coming to class at 7 a.m. She wrote a stunning essay about being punched, beaten and shouted at while riding a bus to a newly integrated school in North Carolina.
Just follow these simple steps --
Eliminate all tax deductions for donations to all colleges and universities next year, from January 1, 2013 through December 31, 2013. Renew the ban for another year, and another, until colleges present their own plan to end abuse of their nonprofit status.
How would that produce $10 billion in new tax revenues? Here's my math. In 2011, colleges and universities raised $30.3 billion, according to the Council for Aid to Education. This means that people deducted $30.3 billion from their income before the Internal Revenue Service applied a tax rate to what these people paid. Lower personal income means lower taxes paid. I’ll pick a 30 percent tax rate. Due to the deductions for these donations, then, the federal government received $10 billion less than it would have.
Next, come Senators, Congressmen, please heed this call and read Article I, Section 8, of the U.S. Constitution: “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States.” That’s right – The Constitution gives you, not college trustees and presidents, the responsibility to determine federal spending, be that one dollar, $10 billion, or $10 trillion.
Any new plan for higher education federal tax benefits , must require from the college an Educational Impact Statement (EIS) prior to construction of any new buildings or initiatives financed with tax-free dollars. The EIS must explain and demonstrate measurable educational benefits for undergraduates brought by the new project. College and universities will report results versus plan each year in the annual IRS 990 report. Deductions for athletic buildings and facilities will end. (James E. Coleman Jr., a Duke University law professor, first suggested the EIS to me.)
A few heard but none listened in 2006 when I felled a tree in the woods with a paper entitled "U.S. Tax Policy, Research Grants and Higher Education: The Undebated Billions," with Jonathan Leirer, a research assistant.
My opener was: “Columbia University has announced a $1 billion -- or 246,913 Pell Grant -- raid on the U.S. Treasury. Cornell University has also joined the game, taking away another $1 billion in possible taxes. These raids have the blessings of the Secretary of the Treasury, of both Houses of Congress, and of you and me.” Some numbers have changed, but the principles and formulas remain. Click here for a link to the paper. Senator Grassley, this is the paper I gave to you.
David Warren, president of the National Association of Independent Colleges and Universities (NAICU), I stipulate here that you are the best lobbyist in Washington, period. Keep your powder dry and lead your flock. Yes, I read past the first paragraph of the CAE report. I know that 25 percent of the colleges amount for 86.3 percent of the fund-raising. Your member colleges who might go out of business without charitable deductions need to stand up to the abusers. For the record, remember that it was 10 years ago now that I first pitched you the idea of having donations to fund need-based scholarships be 115 percent tax deductible. And to let donors of endowed scholarships write off the gift as fast as their incomes permit. No reply on my reminders to you. In any rebuttals to my proposal to eliminate tax deductions, please delineate why indoor golf nets and such should receive federal subsidies.
Eliminating charitable deductions, an idea in this budget debate, is a crazy idea. Reframe the discussion to eliminate the indiscriminate abuse of these deductions at so many colleges. The idea of a tax deduction to a nonprofit is that the nonprofit is providing a service the government would otherwise have to provide. Charity would be feeding, clothing, housing, educating the poor. I await anyone’s explanation of why charity is buying the Aeron chairs I saw in a Brown University library.
Why not instead focus the deductions on activities that align with national goals? Senator Reid and Speaker Boehner: The U.S. uses tax policy to support national goals all the time, from oil drilling to home ownership to hedge-fund enhancement. How about using tax policy for donations to college to close the science and math gap with the rest of the world? You may not choose to do this. Such a policy would work. Senator Grassley? Who got you to chicken out from your investigations of what colleges were doing with all this wealth? Heck, I went up and told you all this after a 2007 Finance Committee hearing.
Here’s how bad this college/tax policy situation is. Remember that the maximum Pell Grant, aid for the poorest students, the ones with 40-hour-a-week jobs, is $5,500. The federal subsidy via today’s tax policies alone at the nation’s wealthiest colleges – Yale, Princeton, Harvard, Stanford, Williams, Grinnell – is $10,000 to $30,000 per student, depending on your assumptions. (See box at right.) That’s every undergraduate, not just the ones on financial aid. Repeat: every undergraduate student at Yale, Princeton, Harvard, Williams, Stanford, receives twice the federal subsidy as the nation’s poorest students. Remember, the hedge-funder’s child at Grinnell received this $10,000 just for enrolling. No needs test. The poor students and their families must hand over all their personal financial information in the FAFSA form.
The plain truth, of course, is the monkey wrench explaining the horrors of colleges and abuse of tax policies. Even I wonder if I am making this up. Is this the nation any of us want to live in? Twice the federal subsidy for wealthy students at Williams as for a 50-year-old woman working overnight and showing up at a 7 a.m. class in a community college? As usual, I pray for ideas better than mine. Remember, the point of tax deductions for charity is to create a public good for the nation. Remember, the colleges leading this $10 billion treasury raid are the same as those who have enrolled only 174* undergraduate veterans. The * is because some don’t even know the number of veterans enrolled.
I’ll close with an invitation to all who have read this far disagreeing. What would your argument be against this discussion-sparking idea:
Why not link deductibility on gifts to college presidential pay (including annuities and housing, of course)? Gifts would be 100 percent deductible to a college where the president earns $250,000 or less; 50 percent deductible at colleges with presidential pay between $250,000 and $500,000; and no deductions for college with presidential pay higher than $500,000?
Your answer must convince a community college student in a 7 a.m. class.
Wick Sloane writes the Devil's Workshop column for Inside Higher Ed. Follow him on Twitter: @WickSloane.
From health care to major league baseball, entire industries are being shaped by the evolving use of data to drive results. One sector that remains largely untouched by the effective use of data is higher education. Fortunately, a recent regulation from the Department of Education offers a potential new tool that could begin driving critical income data into conversations about higher education programs and policies.
Last year, the Department of Education put forward a regulation called gainful employment. It was designed to crack down on bad actors in investor-funded higher education (sometimes called for-profit higher education). It set standards for student loan repayment and debt-to-income ratios that institutions must meet in order for students attending a specific institution to remain eligible for federal funds.
In order to implement the debt-to-income metric, the Obama administration created a system by which schools submitted social security data for a cohort of graduates from specific programs. As long as the program had over 30 graduates, the Department of Education could then work with the Social Security Administration to produce an aggregated income for the cohort. Department officials used this to determine a program-level debt-to-income metric against which institutions would be assessed. This summer, the income data was released publicly along with the rest of the gainful employment metrics.
Unfortunately, the future of the gainful employment regulation is unclear. A federal court judge has effectively invalidated it. We, at Capella University, welcome being held accountable for whether our graduates can use their degree to earn a living and pay back their loans. While we think that standard should be applied to all of higher education, we also believe there is an opportunity for department officials to take the lemons of the federal court’s ruling and make lemonade.
They have already created a system by which any institution can submit a program-level cohort of graduates (as long as it has a minimum number of graduates in order to ensure privacy) and receive aggregate income data. Rather than letting this system sit on the shelf and gather dust while the gainful employment regulations wind their way through the courts, they should put it to good use. The Department of Education could open this system up and make it available to any institution that wants to receive hard income data on their graduates.
I’m not proposing a new regulation or a requirement that institutions use this system. It could be completely voluntary. Ultimately, it is hard to believe that any institution, whether for-profit or traditional, would seek to ignore this important data if it were available to them. Just as importantly, it is hard to believe that students wouldn’t expect an institution to provide this information if they knew it was available.
Historically, the only tool for an institution to understand the earnings of its graduates has been self-reported alumni surveys. While we at Capella did the best we could with surveys, they are at best educated guesswork. Now, thanks to gainful employment, any potential student who wants to get an M.B.A. in finance from Capella can know exactly what graduates from that program earned on average in the 2010 tax year, which in this case is $95,459. Prospective students can also compare this and other programs, which may not see similar incomes, against competitors.
For those programs where graduates are earning strong incomes, the data can validate the value of the program and drive important conversations about best practices and employer alignment. For those programs whose graduates are not receiving the kinds of incomes expected, it can drive the right conversations about what needs to be done to increase the economic value of a degree. Perhaps most importantly, hard data about graduate incomes can lead to productive public policy conversations about student debt and student financing across all higher education.
That said, the value of higher education is not only measured by the economic return it provides. For example, some career paths that are critical to our society do not necessarily lead to high-paying jobs. All of higher education needs to come up with better ways to measure a wide spectrum of outcomes, but just because we don’t yet have all those measurements doesn’t mean we shouldn’t seize an a good opportunity to use at least one important data point. The Department of Education has created a potentially powerful tool to increase the amount of data around a degree’s return on investment. They should put this tool to work for institutions and students so that everyone can drive toward informed decisions and improved outcomes.
It should become standard practice for incoming college students or adults looking to further their education to have an answer to this simple question: What do graduates from this program earn annually? We welcome that conversation.