Among the biggest challenges facing the state are an education system that’s failing too many young people and a broken transportation system. Child care and preschool are unaffordable for many families, many of our public schools are underfunded, our public universities are too expensive, and our roads and bridges, regional transit services, and the MBTA need urgent improvements.
If elected governor, I would propose imposing a modest tax on the robust endowments of the wealthiest private colleges and universities in Massachusetts in order to fix these systems.
A 1.6 percent tax on the value of endowments exceeding $1 billion would raise an additional $1 billion annually. The tax would impact just nine private institutions, which collectively have endowments totaling more than $65 billion.
It’s a fair proposal. These nonprofits have accumulated enormous wealth, in large part because they don’t pay taxes. One report estimates that Harvard University, which has a $39 billion endowment, receives about $48,000 per undergraduate student in tax subsidies and other government support. Meanwhile, the state spends just $8,000 per undergraduate student at UMass Boston. We know that a higher percentage of students who graduate from our public institutions choose to remain here in Massachusetts than those who attend the private institutions.
The government subsidies provided to institutions of higher education are regressive — the wealthier the institution, the more it benefits from tax breaks and the more government loses in revenue that could be invested to support broader public objectives.
Of course we are fortunate to have these incredible colleges and universities in Massachusetts. They help drive our knowledge-based and innovation-oriented economy. They also give financial aid to lower-income students who otherwise couldn’t afford their tuition.
But these institutions are part of our broader community. Thanks to our support of them through their tax-exempt status, some have accumulated enormous wealth and are in a position to give back without impacting the important contributions they make.
Critics have argued that taxing the endowments of Harvard and other universities will prevent these institutions from providing scholarships and financial aid to needy students. But it’s worth noting that Harvard and other elite colleges pay more in endowment management fees than they do in scholarships. What’s more, Harvard gives more aid to athletes and legacy students than to low-income students.
And even after they make these valuable contributions, their multibillion-dollar endowments have grown at an average annual rate of 4.8 to 8.4 percent over the last 15 years. A modest tax should allow these institutions to keep doing everything they do today and still grow their endowments at a rate that exceeds inflation.
And as important as these colleges and universities are to our economy and the strength of our community, our most important asset is our people. This endowment tax proposal is fair, and it’s the right thing to do. The new tax revenue will result in a better educated and more mobile workforce, a stronger economy, and a better quality of life for working families being left behind.Jay Gonzalez is a Democratic candidate for governor.