TAXING EDUCATIONAL GIFTS
Johnston, William E. Jr.
TAXING EDUCATIONAL GIFTS WILLIAM E. JOHNSTON, JR. More tham simply dosing loopholes in the low The Tax Equity Act (HR 1040) now pending before Congress, with hearings about to get underway, would...
...I was an undergraduate at the University of California at Santa Barbara and am currently a doctoral candidate at the Claremont Graduate School, so I am not unfamiliar with the virtues (and vices) of the public and private realms...
...We are not talking just about Harvard or Yale...
...It would indeed be a melancholy chapter in the history of American higher education if the Congress, out of passionate regard for tax equity, were to cripple the very institutions which throughout our history have been the vehicles for the reasoned transmission of the political tradition of egalitarian democracy and political liberty...
...But because they are also directly taxes on the rich they would discourage giving...
...But one important charitable recipient is private higher education...
...Anyone familiar with the financing of private higher education in this country will see immediately the likely consequences of these changes...
...No more than 50 percent of the value of an estate would be available to the charitable recipient unburdened by taxation...
...Can our system of education withstand the removal of this private contribution...
...The principle is that the government is willing to tax less in return for voluntary distribution of wealth by those whose contributions to carefully registered non-profit organizations are deemed in the public interest...
...From such a perspective, private and voluntary distributions of wealth are illegitimate if not subversive...
...The government may gain tax revenue, but it is certain that private education will lose support...
...This would be the case if the donor could escape taxation without giving any money or property to the publicly approved charitable recipient...
...Clearly I am in favor of a vigorous system of private higher education...
...Present law allows deduction of the full WILLIAM E. JOHNSTON, JR...
...What is certain is that this procedure for distributing private wealth for public purposes (of which private higher education is one) hardly constitutes a loophole...
...The bill is certain to undergo many revisions in die course of its legislative history, and modifications in detail will be of crucial importance...
...Only the actual value at time of purchase would be deductible...
...That this desire is now viewed with suspicion testifies to how far we have come in our thinking about the role of private, voluntary distributions of "the works of our hands and the works of our minds...
...Rich Citizen Z is less rich by the amount given away...
...Not Just Private All that I have here outlined is intended to suggest the possible deleterious effects of changes in our tax system now proposed, changes which bear on the health of higher education, and on freedom...
...Not his or her fiscal advancement...
...Theoretically, it may matter little to the rich person who gets the money, but ft matters to the "who...
...Independent colleges and universities would prefer to rely on a wide variety of private sources, challenging as it is now to solicit such funding...
...Mainly religious groups (over 40 percent of total giving...
...Now, it may seem that these changes are fair and equitable, that they close loopholes through which the rich have been allowed to escape from just taxation for too long...
...The political theory behind this movement harks back to Rousseau, who cop-tended that only the general will could provide legitimacy to political actions, and that private wills must be forced to be free, that is generalized within the willful authority of the public power...
...The effect of this movement, if carried to its logical extreme (the making of everything private into a public concern), would be disastrous to most personal freedoms and would, of course, be catastrophic to independent higher education...
...A rich plurality of educational possibilities re-quires a rich plurality of financial support mechanisms...
...But I am also in favor of a flourishing system of free or low-cost public colleges and universities...
...The proposed tax would perforce be levied on the college or university for its receiving a gift...
...Both are vital...
...Let me be candid...
...they are independent colleges and universities...
...In taxing the rich, do we deprive others of the distributions of Wealth traditionally made voluntarily...
...Nevertheless, because the proposed legislation contains at least two provisions likely to have profound economic impact on private colleges and universities, it is worth our time to "consider these proposals for their representative value...
...The decision to distribute private wealth to charities and private colleges and universities in return for deductions of taxable income represents self-taxation...
...In fact, what we are talking about are tax incentives to give money away...
...It should go without saying that private colleges and universities are a fundamental part of the American system of higher education...
...They should be replaced where possible with the public confiscation of private wealth and its later distribution in what we now call transfer payments...
...who loses...
...Academic freedom must mean that the academy and its members are free from the direct instruments of government coercion and the lavidious sanctions of private wealth...
...And the situation is similar with the appreciated property provision...
...By drastically curtailing the incen-to contribute "capitalist accumulation," whether in-not, one may still "the dissonance between ideological assertion and ecological base," as Moynihan puts it, a paradoxical tension that has been salutary for the perpetuation of American freedoms...
...It is therefore essential that no single power, whether public or private, be able to control or erode the integrity and independence of American higher education...
...Section 604 would discontinue the tax-free status of estates left to charitable institutions...
...They rely on principles of rigorous selection and As Daniel Moynihan has noted, Amer-higher education is "ideologically egalitarian but inequality elitist...
...This is elementary...
...perhaps a more exalted position after death...
...Ought we to consider private wealth, voluntarily distributed, obnoxious to democratic freedoms, and, consequently, to assume that only public financing can secure popular freedoms...
...But, as in so many questions of public policy, it is not as simple as that...
...Theft are the inescapable political facts...
...Who gets this money...
...Clearly, they would not only close "loopholes...
...and political liberty...
...More tham simply dosing loopholes in the low The Tax Equity Act (HR 1040) now pending before Congress, with hearings about to get underway, would make great changes in the way private higher education is financed...
...Section 504 of HR 1040, if approved, would henceforth disallow deductions for the amount of capital gain in gifts of appreciated property to charitable organizations...
...The donor is denied a tax deduction but the loss would actually be taken by the school...
...These schools of which we have been speaking are not just private schools...
...The power to pay is the power to control...
...But when a donation is made to College X and a tax deduction claimed, the rich person does not get to keep the money or property...
...This is uncertain...
...Are these "equities" intended to close loopholes or dose schools...
...The colleges and universities would lose the amount taken away in taxes, assuming the gifts were still made under these modified circumstances...
...By changing the tax system you also change the pattern of giving...
...Because private higher education depends extensively on public encouragements to voluntary distribution, it would be disingenuous to assume that the active discouragement of such distribution will be without impact...
...It cannot be too strongly emphasized that private sources are decentralized, heterogeneous, flexible and personal...
...It goes to College X and is spent (usually with great dispatch...
...This system of tax incentives has proven to be an extraordinarily efficient means for the redistribution of wealth along lines and in directions salutary to our social health...
...What does the donor gain in such a transaction...
...Are tax deductions for charitable contributions tax loopholes...
...They have profound qualitative consequences...
...The questions are, inevitably, who pays...
...What will be given will be taxed and what will be taxed cannot be given...
...candidate in government at Clare-mont University Graduate School in California...
...they are real, extensive and politically significant...
...The standards crucial to the success of higher education remain preeminently private ones...
...I find them so personally, and I believe public policy in a, democracy that would remain healthy and informed ought to be so balanced as to preserve and sustain both...
...Where schools did not just close, the transformation of private influence on, and support of, education into the dependence of private institutions on public generosity-when available, and when it may practically come with the weight of a large bureaucracy -would carry with it new imperatives affecting academic vitality and freedom...
...The power to tax is the power to destroy...
...And this is the lesson...
...Obviously, any change in the incentives to private donors to continue this support will have serious consequences for these schools, and for others which share their condition...
...Pomona College, founded in 1887 and the founding member of the Claremont Colleges (Claremont Graduate School, Scripps College, Claremont Men's College, Harvey Mudd College, and Pitzer College) had 32 percent of its total expenditures supported by philanthropic gifts in 1973-74...
...This movement of thought, this definition of equity, if not successfully challenged, may constitute one of the more dramatic reversals of our founding ethos...
...Public sources tend to be centralized, monolithic, inflexible and bureaucratic...
...No single system of support for higher education will suffice if we intend to preserve our varieties of educational experience...
...These considerations ought not to be ignored...
...A dead person can hardly benefit from the giving away of an entire estate...
...When one speaks of independence, one is talking about independence from arbitrary authority, whether public or private...
...fair market value at time of contribution...
...They move toward defining freedom in terms of the exclusivity of public authority...
...The proposals now before Congress contemplate more than tax equity...
...For, even assuming the replacement of private support by public funding-a large assumption given the present demands on federal and state revenues-the characteristic independence of liberal arts education, and higher education as a whole, will be compromised By further public dependency...
...These changes in tax regulations would, then, be new taxes indirectly levied on private higher education...
...Harvey Mudd College had 51 percent of its total expenditures for the same period supported by private voluntary sources...
...is a consultant to the Clartmont University Venter and a Ph.D...
...The claimant to a deduction must usually give up more than he or she receives from the government...
...Only monies collected by the government and distributed by it are legitimate uses of wealth...
...A Political Judgment The final judgment as to the continued propriety of these incentives to giving will be a political one...
Vol. 102 • October 1975 • No. 15
