College Endowments and Donations on the Taxing Block?

Congress is looking at college and university endowments and at their donors as a source of revenue. Tax endowment fund earnings have been exempted from federal income tax and those who contributed to such endowment funds were able to “deduct the value of their contributions from income subject to tax.”

A recent CRS report is advising Congress on their “options for changing their tax treatment” in order to increase federal revenue and to “encourage additional spending from endowments on specific purposes” such as tuition assistance. This administration has promised free tuition and it must find ways to fund that promise. http://www.fas.org/sgp/crs/misc/R44293.pdf

The policy options discussed were as follows:

1.      “A payout requirement, possibly similar to that imposed on private foundations, requiring a certain percentage of fund be paid out annually in support of charitable activities; (distributing more financial aid to students)

2.      A tax on endowment earnings;

3.      A limitation on the charitable deduction for certain gifts to endowments; (some of the endowment money is spent over a long period of time yet the donor takes the entire tax deduction immediately)

4.      A change to the tax treatment of certain debt-financed investments in strategies often employed by endowments.” (off shore investment for example)

The report did not discuss the ever-escalating cost of higher education but it did mention Senator Chuck Grassley’s and Representative Peter Welch’s 2008 round table discussion, “Maximizing the Use of Endowment Funds and Making Higher Education More Affordable.” http://www.finance.senate.gov/newsroom/ranking/release/?id=38a762b5-0fc7-4a9c-a130-3ddf23812279

A hearing of the House Ways and Means Committee focused on “The Rising Costs of Higher Education and Tax Policy” is also mentioned. http://waysandmeans.house.gov/event/39840295/

A university maintains a fund called endowment in either cash or property. Income from any endowment can be used to cover the operating costs and capital expenditures, to fund special projects, or to reinvest. Universities can have hundreds or thousands of funds, based on special agreements made with various individuals who donate with strings attached such as how the fund is to be used, when, and how the principal or the income earned are to be used.

Some endowments are dedicated to scholarships and others to faculty support. A true endowment is a permanent endowment. When a period of restriction expires, the university can use the funds as they wish – these are considered term-endowments. General gifts and bequests are considered quasi-endowments. Congress is looking at all three types of university endowments.

Endowments are tax-exempt because they are part of tax-exempt 501(c)(3) organizations or the endowment itself has a 501 (c)(3) tax-exempt status. Any contribution to such endowments is tax deductible to a contributor under the Internal Revenue Code Section 170. Additionally, any investment earnings of an endowment are also tax free. A university is considered charitable and educational in purpose and it is thus tax exempt.

According to the writers of the CRS report, “College and University Endowments: Overview and Tax Policy Options,” dated December 2, 2015, “If the return from endowments of colleges and universities were taxed currently at 35%, the revenue gain is estimated at $16.2 billion for FY2014. If only private universities and colleges were subject to a tax, the gain would be estimated at $11.1 billion, since public institutions are responsible for 31.7% of assets.” (p. 7)

The data for this report was collected from the U.S. Department of Education, the National Association of College and University Business Officers (NACUBO), and the Internal Revenue Service. The report lists 25 private colleges with the highest per student endowments. The top ten listed are Yale, Princeton, Harvard, Stanford University, MIT, Rice, University of Chicago, Pomona College, Swarthmore College, and Amherst College. (pp. 11-12)

The CRS report also lists the top 100 colleges and universities with large endowments and their cumulative share. (p. 28)

Statistics show that the average endowment per student in 2014 at private doctoral-granting universities was $214,300 and the median was $70,900. (p. 12)

The total college and university endowment for 2014 was $516 billion, with assets concentrated with 11 percent of institutions holding 74 percent of endowments. Yale, Princeton, Harvard, and Stanford held each more than 4 percent of total endowment assets. (Summary, p. 2)

The average payout rate (spending) from endowments was 4.4 percent and endowments earned a 15.5 percent average rate of return in 2014, resulting in income of $79 billion. (p. 16) According to the CRS chart, the payout rate has oscillated between 4.2-5.1 percent from 1998 through 2014. (p. 14)

College and university endowments make investments in equities (buying stocks in a company, derived dividends, and capital gains from the sale of the stock), fixed income (U.S. Treasuries, money market instruments, mortgage and asset-backed securities, and bonds), and alternative investment strategies (hedge funds and private equity).

College and university endowments could be a potential cash cow for the federal government in need of additional revenue to add to its spending ceilings, exacerbating the $18.8 trillion in national debt.

 

Obamacare, This Won't Hurt a Bit

Thousands of articles have been written and commentaries made since the Affordable Care Act nobody can afford had passed. In spite of the vociferous demands to defund it coming from the majority of the American people who work for a living instead of voting more welfare for themselves, the best health care in the world will gradually disappear, replaced by a radical form of socialized medicine that most Americans are not prepared to understand or accept.

Obamacare is now the law of the land for some, depending on which parts the president decides to implement and which to delay. The elected representatives have turned a deaf ear to all the calls, rallies, faxes, letters, op-eds, and direct visits to their offices. They were so sure this type of medical insurance/care that John Roberts termed a “tax” was right for Americans that they exempted themselves from its burden. Furthermore, when our Congressmen who make a six-figure salary complained that the exchange rates were so prohibitively expensive, they received a special 75% subsidy to defray the cost. Who is going to help Americans who make too much income to qualify for subsidies?

Sen. Ted Cruz of Texas made a 21 hour valiant effort in the Senate to give a final voice to the unhappy Americans who wanted to keep their private medical insurance, their doctors, the affordable insurance rates and plans, their full-time jobs, and the ability to see a physician or have a test in a timely manner. Sen. Cruz was ridiculed and maligned not just by liberals. Supposed conservatives and RINOs were tripping over themselves on the way to the microphones in a chorus of criticism to attack Sen. Cruz’s character, credentials, experience, and his noble intentions.

The government computers were not properly working and interfacing yesterday to tell Americans exactly how much they would need to pay come October 1, 2013. And these bureaucrats are going to tell us whether we can or cannot have certain medical procedures and are going to be the repository of more than 307 million people’s medical records, including our sexual habits, and the most intimate details of our lives from birth to death.

A neurosurgeon called into a nationally syndicated show telling the host that the infamous death panel is already at work, advising him on whom he can operate and to whom he must refuse surgery. I wonder how that would square off with the Hippocratic Oath doctors have taken upon medical school graduation.

Even the Teamsters union, the main supporters of the Obamacare, have change their tune now and asked for another exemption from a law that will destroy their Cadillac insurance plans and medical care.  They were denied.

Since 85 percent of Americans had some form of medical insurance, The Affordable Care Act was supposedly designed and passed to help the 15 percent uninsured. At the end of the full implementation of Castro Care, there will still be 30 million uninsured and millions of workers relegated to part-time work to help employers avoid the penalties of the law. Employers could not continue to offer highly expensive private insurance plans whose cost have been driven into the stratosphere by the onerous demands of Obamacare.

Obamacare has turned our country’s labor market into a part-time work nation. It is debatable that it was an unintended consequence. If this law was about health care, wouldn’t it have been cheaper to just purchase insurance for the 15 percent uninsured through some federal program? After all, we waste billions and trillions on wars without end and purpose, and we have enough money to arm Al Qaeda terrorists and the Muslim Brotherhood in the Middle East.

Come January 1, 2014, people who chose not to buy insurance because they cannot afford the bare minimum $20,000 a year Bronze Plan for a family of four, they will have to pay a fine/tax of $95 or one percent of their incomes. Since taxes are paid for the previous year when the ACA was in force only three months (October-December), would the fine/tax for 2013 be prorated? I don’t think so.

We have been bombarded by doctors, including our cat’s vet, to create a portal into the electronic compliance that the doctors must submit to the federal government in order to make sure that all of our medical data is out there for the world to hack into. The emails keep coming with messages from family doctors to create these portals and I keep ignoring them.

Concierge medicine is more and more enticing to a lot of people until Congress will pass an amendment to the Obamacare that will ban medical services for cash. In northern Virginia many doctors already do not accept any form of government insurance and concierge medicine is quite popular. But some people cannot afford the upfront membership fee being that it is higher than the yearly premiums they used to pay for comprehensive insurance through their employer.

Trader Joe’s part-time employees and other companies’ employees had really good insurance for affordable monthly premiums. Not anymore, Obamacare made sure that it was destroyed. I hope that these very people who voted so enthusiastically for President Obama twice, and have now lost their health insurance, realize that this law was not about insuring the uninsured or improved health care delivery or fairness, it was about control. “Evil” capitalist choices who kept people alive and well, the envy of the rest of the world, have been eliminated with the stroke of a presidential pen. Americans have nobody else to blame but themselves.

My sweet Mother, who is 81 years old and way passed Castro Care’s cut off age for any meaningful medical care, visits, tests, or procedures, has become a “unit” and must already beg her physician for her arthritis medication refills. They are too expensive when computed into the death panel formula for her usefulness to society.

Mom helped raise three children and survived the oppressive communist regime in Romania. She immigrated to the United States, the land of abundance and freedom, to live the rest of her life in peace and free of worries.

My Mom is a lucky octogenarian who does not have any major health issues. If she did, she would be told by the IRS, our new doctors, to go home and take a pill, she had lived a long life already.  It angers me that Obamacare makes mom’s life irrelevant and inconvenient.

The worth of any society is dictated by how well they treat the sick and the elderly and how much they value life. It is shameful how low we have fallen since we’ve allowed a liberal minority to control who lives and who dies. As a society, we have lost our humanity.