Opinion: Endowment Tax Act Will Support Equity In Public Education

Chapters of the Young Democratic Socialists of America (YDSA) at UMass Amherst, Amherst College, and Hampshire College, along with the Public Higher Education Network of Massachusetts (PHENOM), and students across the Five Colleges, and others in the Pioneer Valley, are leading the charge to make the state’s richest colleges and universities pay their fair share to support education with a tax on their endowments. Although a college degree remains key to a well-paying job and access to a higher quality of life, it has become increasingly out of reach for everyone but Massachusetts’ wealthiest due to ever-rising tuition costs and crippling debt students have taken on to get their degrees.

States including Massachusetts have been giving less and less funding to their state universities,  which are the engines of their economies and help keep residents in the state, and the universities  have adapted by putting the burden on students, with higher tuition every year. They have also resorted to over-admitting students, which causes overcrowding and drives up housing prices, as if students weren’t already paying enough. 

Meanwhile, elite private universities like Harvard University are richer than ever, with endowments that have risen to record highs since the

pandemic. They argue, that their endowments support the public good. But do they? Harvard’s fortune is larger than the economies of several  countries, yet they only admit 1,400 undergraduates per year, serving a privileged few rather than the public. As critics have pointed out, with its $51 billion endowment Harvard could create a second university and educate double the students.

As of 2023, Harvard’s endowment is nearly $51 billion. On the other hand, the entire University of Massachusetts system has an endowment of  $1.3 billion. Likewise, Amherst College has a $3.31  billion endowment — over twice the amount of the entire UMass system, which serves roughly 70 times more students. That pencils out to about $1.7 million in endowment per Amherst College student.

It would be one thing if these private colleges and universities used their endowments to educate as many students as possible, but they don’t. As education experts have pointed out, elite universities obsess over exclusivity and single-digit admission rates, which means educating a tiny portion of the population. Granted, colleges like Harvard do educate a solid amount of lower-income and middle-class students. But due to how small universities like Harvard are, relative to how much money they have, public universities like UMass Amherst end up educating far more with less. And UMass graduates are also more likely to remain in Massachusetts and give back to our economy.

If private colleges and universities are not using their fortunes to educate the public, it is only reasonable that they give a sliver of their endowments to colleges that actually educate most Massachusetts college students. This could be done by  levying a 2.5 percent excise tax on the endowments of private Massachusetts colleges and universities with endowments over $1 billion. This would include Amherst College, Williams College, Harvard University, Tufts University, Boston University, Boston College, Smith College, Northeastern University, and MIT.

The tax revenue would be put into a fund that would be used directly for public education, from pre-K  through college graduation. It has been well documented that funding for public education, especially higher education has severely declined in the past few decades (see also here).

The endowment tax, if passed, would be pocket change for Harvard and other universities with endowments over $1 billion. 

And this does not consider the negative effects of many such colleges and universities on their surrounding cities, as they sometimes cause gentrification, divide neighborhoods, and drain municipal services while paying no property taxes. In light of this, taxing the endowments of private colleges and universities should be considered a modest corrective.  The proposed Endowment Tax Act 

(H. 2824) can be a first step toward making elite institutions of higher education in Massachusetts live up to their professed goal of serving the public good.

Brief Endowment Tax FAQ
What is the point of the endowment tax and who will benefit from it?
The tax revenue will be reserved in a fund to be used for public education, K-12 through higher education

How does this differ from the Gonzalez’ endowment tax proposal from 2018?
This proposal (H. 2824), sponsored by State Senator Jamie Eldridge (D. Middlesex and Worcester) and State Representative Natalie Higgins (D. Leominster) is a slightly higher tax (2.5% vs 1.4%), and has a clearer delineation of how the money will be used.

Is it justified to tax universities just because they’ve amassed large endowments? 

Colleges and Universities are tax exempt and hence are not required to contribute to the general public welfare as residents and businesses do through the taxes that they pay.

Will the endowment tax stifle universities from doing research and supporting low-income students?
Most universities only use a fraction of their endowments each year. Most endowments have a rate of return on investment between 4-5% annually, so only the rate of growth of the endowment would be impacted.

How do you ensure the endowment tax revenue will be used responsibly?

The legislation explicitly states the revenue’s purpose for funding public education. It will be overseen by a governing board and can also be held accountable through  public advocacy.

Is the endowment tax all that’s needed to make colleges more affordable?

This legislation should be passed in conjunction with the Debt Free Future Act and Cherish Act.

Will this just give public colleges an excuse to not solve the deeper problems causing their unaffordability, like the student loan industry, predatory lending, administrative bloat, irresponsible spending, and the existing lack of state support?

This legislation directly addresses lack of state support. More advocacy is still needed to address these other issues!

Liam Rue is communications chair and an organizer for PHEMOM, and a student at UMass Amherst.