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George F. Will: GOP tax bill would raid university endowments

| Wednesday, Nov. 8, 2017, 9:00 p.m.

WASHINGTON

Federal power to establish new governing precedents that can jeopardize venerable principles and institutions is illustrated by a provision of the Republicans' tax bill — a 1.4-percent excise tax on the endowment earnings of approximately 70 colleges and universities with the largest per-student endowments. It would raise less than $3 billion in a decade — less than 0.005 percent of projected federal spending of $53 trillion.

Private foundations pay a “supervisory tax” on investment income to defray the cost of IRS oversight to guarantee resources' use for charitable purposes. In 1984, however, Congress created a new entity, an “operating foundation.” Such organizations are exempt from the tax on investment earnings because they apply their assets directly to their charitable activities rather than making grants to other organizations, as do foundations.

Most university endowments, compounds of individual funds often restricted to particular educational uses, are akin to the untaxed “operating foundations.” Yet the Republicans, without public deliberations, and without offering reasons, would arbitrarily subject university endowments to a tax not applied to similar entities.

Princeton's endowment earnings fund more than half its annual budget, support expansion of the student body and enable “need-blind” admissions. More than 60 percent of undergraduates receive financial assistance; those with family incomes below $65,000 pay no tuition, room or board; those with family incomes below $160,000 pay no tuition. No loans are required. Ph.D. candidates receive tuition and a stipend for living costs. The endowment has funded a significant increase in students from low-income families: Princeton has recently tripled to 22 percent the portion of freshmen from families with the most substantial financial needs. And children of alumni are only 13 percent of this year's freshman class.

Great research universities have enabled the liberal arts to flourish, the sciences to advance, and innovation to propel economic betterment. Increasingly, they foster upward mobility. It is astonishingly shortsighted to jeopardize all this, and unseemly to do so to make a tax bill conform to the transitory arithmetic of a budget process that is a labyrinth of trickery.

Great universities' donors expect investment earnings will be devoted solely to educational purposes, in perpetuity. This expectation will disappear, and the generosity it has sustained will diminish, if Republicans siphon away a portion of endowments' earnings to fund the federal government. The political class will not stop at 1.4 percent. Hence there is a perennial danger that democracy will degenerate into looting society's seed corn for prosperous tomorrows.

Time was, conservatism's central argument for limiting government was to defend civil society's private institutions from being starved of resources and functions by government. This raid against little platoons of independent excellence would be unsurprising were it proposed by progressives. Coming from Republicans, it is acutely discouraging.

George F. Will, a former Princeton trustee, is a columnist for Newsweek and The Washington Post.

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