Back to School: Tax-Exempt College and University Endowments

Comments for the Record

United States House of Representatives

Committee on Ways and Means

Subcommittee on Oversight

Hearing on Back to School:

Tax-Exempt College and University Endowments

Tuesday, September 13, 2016, 10:00 AM

By Michael G. Bindner

Center for Fiscal Equity

Chairman Roskam and Ranking Member Lewis, thank you for the opportunity to submit these comments for the record to the House Ways and Means Committee Subcommittee on Oversight.  We will leave it to the university witnesses to describe how excess endowments are now being used to help students deal with higher tuition prices, although we will address ways to reduce such out of control rates. As usual, we will preface our comments with our comprehensive four-part approach, which will provide context for our comments.

• A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.
• Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25%.  
•  Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
• A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.

The Center recommends a four track education finance system.  Track on is for n0n-college bound students who need technical and soft-skills training to succeed in the modern workforce.  Such students would find an employment sponsor who would pay them to go to school, receiving any family subsidies such as the expanded Child Tax Credit we have explained elsewhere as an offset to the employer’s Net Business Receipts Tax/Subtraction VAT.  There would also be an NBRT credit for providing a portion of tuition, with another portion satisfied in a service requirement of say two years for every year of training.  To prevent peonage in work situations that don’t succeed there will also be a student loan program to buy out these obligations so the worker can move on.   These schools, of course, lack the large endowments referred to in the hearing advisory.

In some industries, of course, there are plenty of low wage workers who are not as productive as the wage is high (although this makes one wonder whether such industries are worth supporting in the economy).  For these employees, paid education should be available – and by pay we mean tuition and wages.

Workers that are less than literate at a tenth grade level deserve full remedial education, with pay at minimum wage levels.  This can be paid for in a variety of ways under our model.  The usual model is for state governments to provide this education – and in our model the educational institution will also provide case management and stipends and would be funded by the NBRT/Subtraction VAT.  There are other options as well.

Employers could provide remedial education and payroll as an offset of their NBRT obligations.  They could also contribute to a third party provider, such as Catholic Charities and their related education systems, again offsetting their NBRT with the contribution (a full credit for both tuition and stipends).  Again, these students will access no university endowment.

 Some employees require college educations to advance.  The first two years of college would be grouped with the last two years of high school and would be provided by the state (including parochial high school and college).  Here is a point where continued state and federal aid will be important and we would expect that University, and indeed secondary school, endowments would offset higher tuition prices – as well as being shared with schools in less prosperous neighborhoods who need updated physical plan.  These students would also receive a Child Tax Credit through the school’s Net Business Receipts Tax (where faculty salaries are taxed, et al) if their family circumstances require it.  None of the Child Tax Credit, student stipend or tuition would be paid back.

The last two baccalaureate years and graduate education would be paid by employers, who would sponsor and pay students (including child tax credits).  Like technical schools, there would be a service requirement.  Unlike junior college level tuition, employers would negotiate for groups of students.  It is expected that this will substantially decrease tuition, just as we found when participating in the H-1B Technical Skills Training Program.  Any special equipment would be borrowed rather than endowment funded and would meet the needs to the client businesses, who would certainly do nothing to grow the endowment.

Thank you for the opportunity to address the committee.  We are, of course, available for direct testimony or to answer questions by members and staff.