Long time readers of my blog know that I strongly disagree with those who argue that Universities need more government funding – especially elite Universities like UCLA. I’ve blogged on this in depth before, see here.
Robert Reich, former president Bill Clintons labor secretary, makes similar arguments in the Los Angeles Times:
Is Harvard a charity?
Most donations go to institutions that serve the rich; they shouldn’t be fully tax-deductible.
By Robert B. Reich
October 1, 2007
This year’s charitable donations are expected to total more than $200 billion, a record. But a big portion of this impressive sum — especially from the wealthy, who have the most to donate — is going to culture palaces: to the operas, art museums, symphonies and theaters where the wealthy spend much of their leisure time. It’s also being donated to the universities they attended and expect their children to attend, perhaps with the added inducement of knowing that these schools often practice a kind of affirmative action for “legacies.”
I’m all in favor of supporting the arts and our universities, but let’s face it: These aren’t really charitable contributions. They’re often investments in the lifestyles the wealthy already enjoy and want their children to have too. They’re also investments in prestige — especially if they result in the family name being engraved on the new wing of an art museum or symphony hall.
It’s their business how they donate their money, of course. But not entirely. Charitable donations to just about any not-for-profit are deductible from income taxes. This year, for instance, the U.S. Treasury will be receiving about $40 billion less than it would if the tax code didn’t allow for charitable deductions. (That’s about the same amount the government now spends on Temporary Assistance for Needy Families, which is what remains of welfare.) Like all tax deductions, this gap has to be filled by other tax revenues or by spending cuts, or else it just adds to the deficit.
I see why a contribution to, say, the Salvation Army should be eligible for a charitable deduction. It helps the poor. But why, exactly, should a contribution to the already extraordinarily wealthy Guggenheim Museum or to Harvard University (which already has an endowment of more than $30 billion)?
Awhile ago, New York’s Lincoln Center had a gala supported by the charitable contributions of hedge-fund industry leaders, some of whom take home $1 billion a year. I may be missing something, but this doesn’t strike me as charity. Poor New Yorkers rarely attend concerts at Lincoln Center.
It turns out that only an estimated 10% of all charitable deductions are directed at the poor. So here’s a modest proposal. At a time when the number of needy continues to rise, when government doesn’t have the money to do what’s necessary for them and when America’s very rich are richer than ever, we should revise the tax code: Focus the charitable deduction on real charities.
If the donation goes to an institution or agency set up to help the poor, the donor gets a full deduction. If the donation goes somewhere else — to an art palace, a university, a symphony or any other nonprofit — the donor gets to deduct only half of the contribution.
Robert B. Reich, author of “Supercapitalism: The Transformation of Business, Democracy, and Everyday Life,” was secretary of Labor under President Clinton.
The full article can be found here. However, though he makes good points, there are still some reservations I have with his solution. The economist blog also mentions very important objections to his proposal, see here.
So what is my solution? I propose we take the middle ground. If your goal is a higher percentage of minorities and disadvantaged youths attending college, then why not directly subsidize them?
As I said in a previous post on this, if I were governor (and kudos to the Governator for proposing this), the way I would structure the system is in one hand increase tuition for all students by capping state subsidies, thereby decreasing the tax burden of all state citizens, and in the other hand use a fraction of that money to help low income families, whether they be middle or lower class. This has the added benefit of directly subsidizing the poor instead of through the -often very inefficient – middle man of Universities. So under my plan the poor and middle class students at these Universities would most likely wind up with even more assistance than is currently done under the current method.
If subsidies are your goal, direct subsidies are almost always the more efficient method. So if you want to subsidies poor students who can’t afford education, directly subsidies them, not some institution that primarily caters to the rich and already well connected.