The Endowment Tax and Myths of Democratic Accountability

When Democratic gubernatorial nominee Jay Gonzalez proposed a tax on large university endowments in a Harvard Square speech last month, he set off a dispute within this editorial section. The Editorial Board (of which I, a mere columnist, am not a member) voted to condemn the tax as a “new attack on Harvard [and] higher ed.” In a dissenting opinion, three board members argued that Harvard’s high revenues mean the tax would have “little effect” on Harvard. Never mind the math: At $500 million, the tax would have taken over 10 percent of the university’s operating expenses of $4.9 billion for 2017. (And if Harvard would barely notice $500 million, why would it better help Massachusetts, whose yearly expenditures approach $42 billion?)

But they do present a more serious argument, even if it receives fewer inches. “If Harvard were truly committed to educational equity, it would be supportive of redistributive policies that would increase access to quality education for all students,” the dissenters write. This claim blankly assumes that $500 million added to the education budget would, in fact, improve educational outcomes, despite mixed-at-best evidence for that causal relationship. But the more fundamental point is even more widely held — and even more troubling: Governments spend more effectively, from the perspective of social justice, than citizens or private organizations, even in philanthropy.

This argument takes on an urgency with the increasing concentration of wealth among a few mega-billionaires. After Jay-Z and Beyonce surprised a teenager with a $100,000 scholarship, University of Southern California assistant professor of writing Ryan Boyd quipped, “Now let’s surprise them with a 90 percenttop tax rate.” CNNMoney reporter Lydia DePillis raised it in the form of a question: “Jeff Bezos is putting $2 billion into homelessness and preschool. Laudable. But you have to ask —is this better than just taxing the wealth of the richest man in the world, and making that money democratically accountable?”

Let’s combine these related points. Is the world be a better place because the Knowles-Carter clan’s $100,000, Harvard’s $500 million, and Bezos’s $2 billion fund a talented high-schooler, cutting-edge research, and homeless shelters, rather than being taken by the “democratically accountable” state?

Yes.

At the federal level, the most obvious reason is that the government is emphatically not democratically accountable — a point particularly salient in the days after Brett M. Kavanaugh became the first Supreme Court justice ever to win this anti-democratic trifecta: nominated by a president who lost the popular vote, confirmed by a Senate representing less than 50 percent of the country, all while a majority of the country opposed his nomination. And that calculation assumes these elections are fair: States variously bar the formerly incarcerated and legal immigrants from voting, gerrymander districts, close polling places, set arbitrarily early registration deadlines, and American citizens in Puerto Rico and the District of Columbia have no representation in Congress. These manipulations advantage those in power — mostly at the expense of the poor and the nonwhite. To whatever extent taxes are spent by the popular will, that negotiation often excludes the most vulnerable.

Boyd and DePillis might reply that the solution is to reform that broken system, and we should. But we should certainly reform before we start wishing Bezos’s $2 billion had been in government hands. And Gonzalez might note that Massachusetts avoids many of those anti-democratic evils, but democratic accountability does not imply good policy: Large majorities have supported the use of tax dollars on projects like the war on drugs and the invasion of Iraq.

Most directly relevant for Gonzalez’s pitch, though, is that even well-intentioned, popular policies tend to fail to achieve their aims. Social Security, the second-biggest federal expenditure, actually transfers wealth from members of the working class, who tend to both start contributing to the program earlier (as fewer go to college) and stop drawing its benefits earlier (as their life expectancy is lower). Why should we prefer that Bezos’s money fund the military and the retirements of the middle class rather than the housing and early childhood education of America’s poorest?

As for Massachusetts’s education budget, I linked to this above, but it bears repeating: The evidence does not convincingly show that funding improves school performance, except at the low end. Gonzalez could much more effectively improve Massachusetts schools by redistributing a bit from Weston and Wellesley to Mendell and McKinley, rather than forcing Harvard to cut its expenses by 10%.

When non-profit entities like Harvard, private citizens like Jay-Z, or even robber barons like Jeff Bezos fund things that benefit society, we should applaud them. They tend to be pretty good at it: They target their spending more precisely, with fewer politically-driven diversions and better incentives. (If you’re skeptical that Harvard’s funding goes to good use, consider that it costs much more to fund medical research than to let a bunch of MBAs network, and the 10 percent cut will hit the former first and hardest.) We should not wish that wealth had funneled directly through the Internal Revenue Service — especially in the status quo, when it would go on to fund war, mass incarceration, child imprisonment, regressive redistribution, and well-intentioned waste.

Trevor J. Levin ’19, a former Crimson Arts Comp Director, is a Social Studies concentrator in Mather House. His column appears on alternate Mondays.