The Right Tax To Support Education

The endowments of the wealthiest universities should be taxed to fund a common purse for education that can be spent on tuition tax credits for some post-high school education

This is a tax progressives should love. America has a uniquely unequal system of higher education. We’re the only place in the world were gigantic sums of money have been accumulated by relatively few educational institutions. Just as redistribution makes sense when it comes to personal income, surely it makes sense when it comes the wealth of educational institutions.

 

The Obama administration dropped its call for taxes on 529 college savings plans. These tax-preferred savings vehicles allow families to put away money to pay for Junior’s college expenses when the time comes. The outcry against the administration’s proposal was not surprising, and it makes no sense to undermine the program.

Nevertheless, the administration’s desire to rethink the funding of higher education is sound and to be encouraged. We have lots of perverse incentives in the current system that bloat costs. We also have a system that overemphasizes the classic four-year undergraduate residential model.

To this end I propose a progressive approach that should appeal to conservatives. The endowments of the wealthiest universities should be taxed to fund a common purse for education that can be spent on tuition tax credits to help all Americans afford some form of post-high school education, which is what we need today as the old student loan model becomes burdensome for young people.

Consider a tax of 2 percent on endowments that exceed $100,000 per enrolled student, stepping up progressively to a maximum of 5 percent for endowments that exceed $1 million per student.

Example: Harvard’s per student endowment is $1.8 million per student. Yale’s is $1.9 million. Both would thus qualify for the 5 percent endowment tax. Their combined endowments are $50 billion. My proposed tax thus provides the federal government with $2.5 billion in tax revenue earmarked for education.

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