Tax deductions have a purpose

A view of Harvard University campus and Holworth Hall on the right and Stoughton Hall on the left in the late autumn when most of the leaves have fallen on Nov. 20, 2010.

Article Highlights

  • No, the government shouldn’t eliminate tax breaks for private universities:

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  • Princeton spent $110 million on student aid last year, many of them would not be attending Princeton absent that aid.

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  • Zeroing out the deduction for private institutions to address noxious extravagances is a cure that’s worse than the disease

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Should government change its tax exemption policies for universities as a way of equalizing educational resources in America? Read More >>

No, the government shouldn’t eliminate tax breaks for private universities. The bigger question of deductions is a complex one. If the proposal were to zero out charitable deductions as part of broader tax reform, that’d be one thing.

"Today’s charitable contributions to private institutions help to fund scholarships for low-income students." - Frederick M. HessHere, however, the question is simpler. The United States Congress first adopted the deduction for gifts to "religious, charitable, scientific or educational" institutions in 1917. Such gifts frequently complement or even substitute for government programs. The intent was to safeguard the web of private institutions that, as Tocqueville observed a century before, undergird our democracy, anchor our communities and act as a firebreak on government.

Today, as Uncle Sam’s reach steadily expands into the financing and regulation of higher education, those on the left and the right who value independent institutions of higher learning should find particular comfort in this practice.

What about the nifty-sounding idea of using the new tax dollars to expand access? Well, the federal government has boosted outlays on higher education by 250 percent, to $170 billion a year, in the past decade. Most of this funding has gone to public institutions. Against this backdrop, the $5 billion or so the proposal would raise seems unlikely to have much impact.

Meanwhile, today’s charitable contributions to private institutions help to fund scholarships for low-income students. For instance, Princeton University has come under fire in this debate, but it’s worth noting that Princeton spent $110 million on student aid last year — providing 60 percent of its students with an average of $35,000. Many of them would not be attending Princeton, absent that aid.

Finally, let’s keep in mind that many public institutions collect a lot more in charitable giving than their private counterparts. I’m not sure why deep-pocketed public institutions like the University of Texas or Ohio State should get to keep raking in deductible gifts alongside state funds, while the Baylors and Oberlins of the world are penalized.

The proposal has a certain facile appeal. But zeroing out the deduction for private institutions to address some noxious extravagances is a cure that’s worse than the disease.

Frederick M. Hess is the director of education policy studies at AEI and author, most recently, of "The Same Thing Over and Over."

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