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Soak the Rich Colleges By: Robert Dunn
The American Enterprise | Friday, September 23, 2005

University and college faculties are overwhelmingly liberal in their politics. The faculties of Harvard and the University of California at Berkeley were large contributors to John Kerry’s Presidential campaign. The Berkeley faculty gave six times as much to Howard Dean as to George W. Bush. Campus liberalism is particularly pronounced at the most elite and wealthy institutions.

A core value of American liberals is the importance of redistributing wealth from the prosperous to others, through highly progressive taxes and transfer payments. Which leads to a question: If redistributing wealth is a good idea for workers, companies, individuals, and families, then intellectual consistency suggests it should be equally valid for institutions like colleges and universities. Right?

Why should students at Princeton, where economist Paul Krugman teaches when he is not thundering against the “well off ” on the New York Times editorial page, enjoy income from huge endowments, while students at poorer institutions have far fewer educational resources? How unfair!

Worse, the extreme inequality of colleges is subsidized by the government. Gifts to rich schools are tax deductible for the donors. Universities and colleges pay no taxes on their capital gains, dividend, and interest income. This is an outrage against liberal principles! Remedial legislation is clearly needed!

These are no small matters. The disparities in college endowments are enormous. As of mid 2004, Harvard, Yale, and Princeton had average endowments of $14.9 billion, while three private institutions of similar size, George Washington University, Georgetown, and American University, averaged $543 million. That is a ratio of 27:1—about the same difference in income between a successful investment banker and a Wal-Mart clerk.

The numbers are even more striking in small liberal arts colleges. Grinnell, the richest of those that report data publicly, had an endowment of $1.2 million per student. Annual earnings of just 4 percent would produce more than $46,000 per student in yearly interest. Why does Grinnell charge tuition?

Bates College had only $106,000 in endowment per student, less than one tenth of Grinnell’s. Gettysburg had $85,000 per student; Pitzer College $56,000; and Sarah Lawrence, only $38,000. That’s about 3 percent of Grinnell’s wealth.

It’s time for an egalitarian revolution. Liberal professors at Harvard, Princeton, Amherst, and Williams should follow the principles they proclaim and strongly support action to end campus disparities by redistributing educational wealth.

Congress should pass, and President Bush should sign, a hefty and progressive tax on large per student endowments. The funds should be transferred to poorer schools. The same tax should apply to future gifts from alumni.

And why stop there? If redistribution is good, the same concept should apply within universities. Why should the law schools at George Washington and Georgetown live in splendor just because their alumni make more money than theology or economics or anthropology majors? The wealth of these law schools should be transferred to poorer departments. Particularly economics!

Professors at rich schools will splutter that such taxes will sharply reduce incentives for alumni to make gifts. Are we to believe that graduates of Yale are so narrow-minded and selfish that they only want to help Yalies? Surely Yale, Princeton, Williams, and Grinnell alums will give just as freely knowing that their gifts are helping students at poorer schools, particularly since they were taught primarily by liberal professors devoted to income redistribution.

Administrators at rich colleges will claim they raised their money through great effort, that it is unfair to take it away, and that this transfer would eliminate the incentive for poor schools to do a better job of fundraising. We won’t take those arguments any more seriously than liberals take the similar arguments conservatives make about income taxes and death taxes.

So when members of the classes of 1956 and 1981 gather next June at their 25th and 50th reunions in the tony precincts of New Haven, Cambridge, Princeton, and Williamstown, they should expect to see 35 to 40 percent of their gifts whisked away to poorer schools. That should improve their feelings of virtue. In fact, they should increase the size of their gifts to make up for the tax. That’s the least they owe us all.

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Robert M. Dunn, Jr. is a professor of economics at George Washington University.

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