NEW YORK, UNITED STATES – 2023/10/12: Students from Hunter College take part throughout a … [+]
House Ways & Means Committee Chair Jason Smith (R-MO) has questioned the tax-exempt standing of universities that, in his opinion, are anti-Israel. Whatever your views on the Middle East, Smith is swimming in very harmful waters.
There are severe questions in regards to the tax remedy of schools and universities. But will we wish to see their tax-exemption referred to as into query, even implicitly, by politicians who disagree with their views on public points? Would Smith be OK if a future Democratic Congress lifts the tax-exemption of conservative schools for ideological causes?
To be certain, Smith stopped simply in need of threatening to repeal the tax-exemption of universities that don’t share his views, however his message was not arduous to overlook. In a ready assertion after Hamas terrorists killed greater than 1,000 individuals in Israel on Oct. 7, he stated, “Some organizations that have celebrated the unspeakable acts of terror…currently enjoy tax-exempt status in the United States, and their statements call into question the academic or charitable missions they claim to pursue. University administrators…fail to condemn actual violence that threatens our way of life all while their institutions enjoy lucrative federal tax-exempt status.”
Universities As Public Charities
Non-profit schools and universities usually get pleasure from Sec. 501(c)(3) tax-exempt standing as public charities.
It grants donors the power to deduct presents to those establishments. It permits almost all schools to keep away from tax on earnings from their endowments. The faculties are also free from state and native taxes, together with, importantly, actual property taxes on their often-substantial property holdings. And they’ll save borrowing prices by issuing tax-exempt bonds.
And whereas in concept solely their earnings from exercise that’s considerably associated to schooling is tax-exempt, in observe the billions of {dollars} that universities make from their near-professional sports activities groups is also tax-free.
The tax exemption is a really large deal. According to at least one examine co-authored by TPC’s Adam Looney, the federal tax exemption alone is price $1.7 billion to the colleges. The tax deduction for his or her donors reduces federal income by one other $8 billion yearly.
Congress made tutorial establishments tax-exempt as a result of it believed schooling fosters a productive, civic society. That ought to incorporate open debate and expression of unpopular, and even repugnant, thought: an concept that just lately has come beneath hearth from each the Left and the Right.
Not The First Tax
Smith’s feedback are usually not the primary time in recent times that congressional Republicans have attacked the tax-exemption for universities. The 2017 Tax Cuts and Jobs Act (TCJA) imposed a brand new 1.4% tax on the web funding earnings of colleges with very giant endowments. The IRS reported the levy was paid by solely 33 establishments. Other analyses, together with this one by the Urban Institute’s Sandy Baum recognized the colleges. Most had been thought of excessively progressive by the GOP lawmakers who proposed the tax.
Still, there are many good causes for Congress to broadly rethink the tax-exemption.
Many are enormous landowners. NYU and Columbia University, for instance, are among the many greatest in New York City. But they pay no actual property taxes regardless that their property typically is leased for revenue and has nothing on to do with the varsity’s tax-exempt objective.
Sure, the actual property revenues assist construct endowments that might assist pay tuition for low-income college students. And the property could contribute to native financial improvement. But how typically do college students see the advantages of those investments?
Big Time Sports
Then there’s big-time sports activities. The NCAA reported that in 2019, athletics generated $15.8 billion for schools and universities, largely from broadcast revenues. And particularly for main soccer applications, these sports activities have develop into rising skilled enterprises. Universities pay coaches hundreds of thousands of {dollars} yearly. Athletes enroll in faculties the place they’ll maximize their endorsement earnings. And the colleges themselves readily shift athletic conferences to spice up sports activities income.
Most of the most important sports activities money-makers are state-run universities that wouldn’t have 501(c)(3) standing. But others, similar to Duke or Notre Dame, are personal non-profits that do.
You would possibly suppose that sports activities broadcasting income has nothing to do with a college’s exempt objective which is, bear in mind, schooling. And thus it will be taxable. But the IRS has been exceedingly versatile about this, and most faculty sports activities income stays tax-free.
Smith and his fellow lawmakers may do an actual public service by completely reviewing the tax-exempt standing of all schools and universities, particularly their non-academic companies similar to sports activities and actual property improvement.
But selectively focusing on faculties since you don’t like their institutional views, and even as a result of they don’t sufficiently police scholar feedback you discover offensive, is troubling. It endangers the free debate that already is in danger on many campuses and in civic life. And it’s a technique which may nicely backfire when political management of Congress modifications, because it inevitably will.
