Most
leading American universities have established “Centers for the Study of
Inequality.” Reducing inequality is one
leg of the holy academic triad of diversity, sustainability, and reducing
inequality. Inequality scholars assert
that the future of democracy and social justice requires reducing inequality in
income, wealth, educational opportunity, health care, neighborhood safety, and
so on, that harms the less well-off members of society.
Scholars
disagree on the best way to reduce inequality.
One school of thought favors more progressive income and heavier wealth
taxes to reduce the income and wealth of the top 1% percent of households, and
redistribute the additional revenue to middle- and lower-income households in
the form of lower taxes and/or more spending.
Another school wants targeted spending programs to provide greater pre-K
education, smaller class sizes, higher teachers’ pay, more local health
clinics, and other services to lower-income households.
Universities
rely on tax-deductible gifts to pay salaries and build and maintain physical
facilities. For the 2016-17 fiscal year, Stanford projects $350 million in
gifts, about 6% of its projected revenue of $5.88 billion. Stanford also has a capital budget of $4.1
billion for the three fiscal years 2016-17 through 2018-19, of which gifts are
estimated to provide 21% of funding. Harvard
is in the midst of a $6.5 billion fund raising campaign. It received $436 million in expendable gifts
in 2015-16.
Gifts
are tax-deductible up to certain IRS limits.
Rich donors, who are in a higher income-tax bracket than lower-income
givers, receive a larger tax deduction for their gifts, thus contributing to
inequality. These are the very people
that help fund (inequality) research centers.
The wealthy also fund the bulk of capital projects. Nine-figure
millionaire and billionaire donors, the 0.001% and 0.0001%, are the principal
source of gifts for new buildings and research facilities.
IRS
Statistics of Income and Itemized Charitable Deductions
In
tax year 2013, 4.81 million households filed tax returns with Adjusted Gross
Income exceeding $200,000. Their itemized charitable contributions totaled $91.0
billion. Altogether, 36.43 million household
filed returns with $194.7 billion in itemized contributions. Households with AGI exceeding $200,000
constituted 13.2% of all returns, but itemized 46.7% of total contributions.
So,
those who propose higher taxes on the income and wealth of the rich are
financed, in part, from the tax-deductible contributions of the rich on whom
they want to impose higher taxes. One
way to achieve greater equality of income is to eliminate the tax deductibility
of gifts to universities. But the
majority of scholars do not think that this is a good idea. Wonder why?
Let’s
dig a little deeper into the numbers.
Membership in the top 2% of income-earners requires an annual AGI of
about $250,000. Many full professors in
leading universities fall in the top 2%, and certainly in the top 3%. Academic stars reporting $430,000 and above
in AGI are in the top 1%. (It takes $1.9
million to join the 0.1% club.)
It’s no surprise, then, that academics that want to levy higher taxes on the rich
limit their recommendation to the top 1%, not the top 2%. But, and a very important but, they believe
that any new taxes should retain the home mortgage deduction, which they
utilize, and the charitable contribution, which helps pay their salaries. Development departments in universities are
concerned their scholars’ proposals to reduce inequality do not reduce gifts from
the unequal rich.
Nonetheless,
these professors teach students that the income and wealth of the 1% is harmful
to society, but that their contributions to universities are not. Wonder why so many students and graduates are
muddle-headed?
PS. When Robert E. Hall and I first proposed our
flat tax in 1981, which eliminates charitable deductions, we got nasty comments
from Stanford’s development department.
Its fund-raisers expressed concern that eliminating the tax
deductibility of charitable contributions would reduce giving to Stanford.
