Yes, The State Needs More Money — But Jay Gonzalez's Plan Is All Wrong

Sometimes politics is so confusing.

I was outraged when a year ago the Republicans, backed by the henchman in the White House, pushed through a “reform” which included new taxes on the endowments of colleges and universities.

We all understood this for what it was: a thinly veiled attack on the blue states that seem to house a preponderance of elitist higher ed institutions. Democrats rose together in their opposition. They denounced the new levy as a bullying, anti-intellectual move, one orchestrated by a White House that showed nothing but disdain for science and progress.

And now along comes Jay Gonzalez to completely upend the narrative.

Gonzalez, the Democratic nominee for governor of Massachusetts, has proposed a breathtaking new tax on Bay State colleges and universities, an elephantine proposal that makes last year’s tax look like a gnat in comparison.

The Trump tax, as loudly as it was decried, levied a simple 1.4 percent tax on the earnings of college endowments. Gonzalez, by contrast, would levy a 1.6 percent tax on the entire endowment itself. And the plan would raise a lot — perhaps as much as a billion dollars a year. Harvard — everyone’s favorite target — would itself be coughing up $563 million.

So as a dutiful Democrat, do I now need to support Gonzalez’ plan?

No, no, no! Bad ideas are bad ideas, no matter which side of the aisle they hail from.

Give Gonzalez credit for fitting right into the caricature of a free-spending Democrat. All this new money would go for lots of transportation and education goodies. But give Gonzalez demerits for not being willing to ask ordinary citizens to fund all these goodies. Instead, he looks around some convenient target.

At first, it was the wealthy, who were going to get their pockets picked under the so-called Fair Share Amendment -- aka, the millionaires’ tax. If put to a vote, that idea would easily have become law — those of us who aren’t millionaires clearly outnumber those who are — until it was quashed by the state’s Supreme Judicial Court in June.

You can just imagine Gonzalez and his policy guys sitting around, mulling how to get the money they so desperately want to spend. It’s like the scene in "Lord of the Rings" when some famished orcs contemplate the hobbits as food: “What about their legs? They don't need those. Ooh! They look tasty!”

So too with college endowment funds. The money’s just lying around, doing nothing. And boy, it looks tasty.

The thing is, tasty as it may look, it’s not just lying around.

Gonzalez rips into colleges as “those institutions that have accumulated so much wealth,” as if they were just an ivy-covered version of some tech company plutocrat. He seems to misunderstand what that “wealth” really is.

The idea behind endowments — be they for higher education or any other nonprofit — is to create a pool of capital that generates interest. That interest in turn funds operations. Ideally the amount of interest generated (plus other recurring revenue, such as tuition) is all the nonprofit spends, so the bigger the endowment, the more interest is generated — meaning the nonprofit can in turn do more of what it was organized to do.

In the case of Harvard and other colleges, the gigantic endowments (Harvard’s is tops at over $36 billion) allow schools to fund a variety of programs such as research, campus improvements and financial aid. That’s what allows Harvard to provide scholarships to almost all of but the most wealthy of its students — including free tuition for families making $65,000 or less. The result is a more diverse student body drawn from all walks of life — something, one would think, Democrats would applaud.

And Gonzalez’ proposed tax? It simply eats into the school’s endowment, shrinking it in size, meaning there is less available for programs such as tuition assistance. It also discourages donors from giving more — since a portion of any donation they make is now just going to the state, they’ll likely wonder: Why not give to a nonprofit that isn’t taxed at all? Moreover, given that the Massachusetts economy is dependent on higher ed (and on the smart and educated workforce it creates), it feels foolish to be disadvantaging ourselves via a vis the other 49 states.

Yeah, it’s easy to see the big schools as piggybanks. But some piggybanks shouldn’t be broken.