Iron Dukes Better Pay Attention To This

[hallcity]

The summary of the proposed GOP tax bill released today contains this language:

"...[T]he special rule that provides a charitable deduction of 80% of the amount paid for the right to purchase tickets for athletic events would be repealed."

[chrishoke]

That's a big deal.

[mgtr]

No matter what change you make, somebody's ox gets gored.

[hallcity]

And there's more that would affect Duke and many other universities more generally, a 1.4% tax on the income of large university endowments.

[duke79]

And there's more that would affect Duke and many other universities more generally, a 1.4% tax on the income of large university endowments.

Not sure exactly how this would work? A 1.4% annual tax on the entire value of the endowment? So a university with a $10 billion endowment would pay the federal government $140 million each year, as a "tax"? Or is it a one-time tax? This seem particularly inane to me and I'm sure many schools would just cut back on financial aid and/or raise the tuition even higher (for those parents paying the full cost)? What would this accomplish?

[CrazyNotCrazie]

Not sure exactly how this would work? A 1.4% annual tax on the entire value of the endowment? So a university with a $10 billion endowment would pay the federal government $140 million each year, as a "tax"? Or is it a one-time tax? This seem particularly inane to me and I'm sure many schools would just cut back on financial aid and/or raise the tuition even higher (for those parents paying the full cost)? What would this accomplish?

It is on income, not the entire value. So if your $10 billion endowment earned 10% in a year (i.e. $1 billion), it would pay a tax of $14 million that year. So in this example, where the endowment had pretty decent returns, the tax is 14 basis points, which is pretty minimal. Of course, the devil is also in the details of how "income" is calculated.

[left_hook_lacey]

The summary of the proposed GOP tax bill released today contains this language:

"...[T]he special rule that provides a charitable deduction of 80% of the amount paid for the right to purchase tickets for athletic events would be repealed."

Why completely repeal it? Why not just reduce the %?

[duke79]

It is on income, not the entire value. So if your $10 billion endowment earned 10% in a year (i.e. $1 billion), it would pay a tax of $14 million that year. So in this example, where the endowment had pretty decent returns, the tax is 14 basis points, which is pretty minimal. Of course, the devil is also in the details of how "income" is calculated.

Thanks for clarifying. This seems almost pointless to me. Surely, it cannot raise more than a few billion dollars a year for the federal government (and only in those years when universities with large endowments have substantial returns) and we're looking at a $3.8 TRILLION dollar federal budget. This is truly not even pocket change for the Feds. And I agree with you that many schools will just "game" the system to reduce their "income" from their endowments to minimize the tax. I'm all in favor of tax reform and simplification but this proposal seems totally out of left field to me.

[sagegrouse]

Thanks for clarifying. This seems almost pointless to me. Surely, it cannot raise more than a few billion dollars a year for the federal government (and only in those years when universities with large endowments have substantial returns) and we're looking at a $3.8 TRILLION dollar federal budget. This is truly not even pocket change for the Feds. And I agree with you that many schools will just "game" the system to reduce their "income" from their endowments to minimize the tax. I'm all in favor of tax reform and simplification but this proposal seems totally out of left field to me.

It is awful and should be opposed. I wouldn't lose sleep over it until there is some legislative action.

[duke79]

It is awful and should be opposed. I wouldn't lose sleep over it until there is some legislative action.

Yea, I'm guessing the final tax bill, IF it is EVER passed, will look far different from what was revealed today. The next month or so will be a field day for lobbyists and various special interest groups.

[johnb]

There are plenty of other issues in this tax plan that are going to immediately hurt affluent Duke alumni more than the tax deduction for tickets or a 1.4% tax on Duke's income.

[arnie]

Not sure exactly how this would work? A 1.4% annual tax on the entire value of the endowment? So a university with a $10 billion endowment would pay the federal government $140 million each year, as a "tax"? Or is it a one-time tax? This seem particularly inane to me and I'm sure many schools would just cut back on financial aid and/or raise the tuition even higher (for those parents paying the full cost)? What would this accomplish?

I take the opposite view on this. If the Duke endowment was routinely depleted with massive giveaways to charities, I’d agree income shouldn’t be taxed. But it seems the purpose of the endowment is to grow it larger - gives more bragging rights to schools. I think Duke is run like a huge corporation with the ability to spend money on many capricious projects without any taxation in endowment income.

Of course I doubt this change or any changes that impact groups with large lobbies will ever pass. The entire system is rigged by lobbyists and their clients.

[PackMan97]

No matter what change you make, somebody's ox gets gored.

...and if you are going to gore someone, this is a good place to start.

Even though I take advantage of this with my WPC donation, this is one tax deduction that I'd be OK to lose. I'm fine with taxing athletic endowements as well.

[sagegrouse]

I take the opposite view on this. If the Duke endowment was routinely depleted with massive giveaways to charities, I’d agree income shouldn’t be taxed. But it seems the purpose of the endowment is to grow it larger - gives more bragging rights to schools. I think Duke is run like a huge corporation with the ability to spend money on many capricious projects without any taxation in endowment income.

Of course I doubt this change or any changes that impact groups with large lobbies will ever pass. The entire system is rigged by lobbyists and their clients.

The requirement for most charitable endowments is that they spend five percent of the principal every year to prevent unbounded growth. I can't remember if there is an "exception" for university endowments, but I am sure that every school has the ability (and the need) to spend five percent of its endowment.

At Duke there is a strong desire to be able to fund all scholarship from special endowment funds. Very few schools are able to do this.

[Duke_92]

If you lose the Iron Dukes’ deduction seems like the donation required for season tickets should come down a bit. I don’t think that demand is perfectly inelastic. It would seems demand would fall and so too would the donation amount.

[mattman91]

In before the thread gets locked.
















I've always wanted to do that

[DevilFalcon]

I like the idea of keeping more of my money so I can choose how to spend it, instead of someone else telling me how I will depend it. Lower taxes in general will hopefully mean we can afford to lose a little deduction here and there. Fingers crossed.

[crimsondevil]

I take the opposite view on this. If the Duke endowment was routinely depleted with massive giveaways to charities, I’d agree income shouldn’t be taxed. But it seems the purpose of the endowment is to grow it larger - gives more bragging rights to schools. I think Duke is run like a huge corporation with the ability to spend money on many capricious projects without any taxation in endowment income.

Of course I doubt this change or any changes that impact groups with large lobbies will ever pass. The entire system is rigged by lobbyists and their clients.

The requirement for most charitable endowments is that they spend five percent of the principal every year to prevent unbounded growth. I can't remember if there is an "exception" for university endowments, but I am sure that every school has the ability (and the need) to spend five percent of its endowment.

At Duke there is a strong desire to be able to fund all scholarship from special endowment funds. Very few schools are able to do this.

This link (https://giving.duke.edu/ways-to-give/endowment) implies that 5.5 to 5.75% of the DU endowment is spent per year. Not sure how much more "massive" you can get and expect to keep/grow your principal over time. You may recall that a lot of universities had to institute furloughs, layoffs, reduced hiring, etc. after the financial crisis, including ones with big endowments since they lost so much value. That suggests they are not sitting on big pools of money for the heck of it.

[sagegrouse]

This link (https://giving.duke.edu/ways-to-give/endowment) implies that 5.5 to 5.75% of the DU endowment is spent per year. Not sure how much more "massive" you can get and expect to keep/grow your principal over time. You may recall that a lot of universities had to institute furloughs, layoffs, reduced hiring, etc. after the financial crisis, including ones with big endowments since they lost so much value. That suggests they are not sitting on big pools of money for the heck of it.

The Duke Forward campaign, which ended June 30 raised $3.85 billion, and even though some of the amount are pledges rather than cash, the Duke endowments funds are growing.

[davekay1971]

Thread still open?!?!?! I'm in!

The most shocking news here to me is that you can take any charitable deduction at all on donations given in exchange for access to sports tickets. I'd love to find out which sports-crazy member of Congress slid that in the tax code once upon a time...and which college he/she was cheering for.

"Mr. Speaker, the Congressman from the University of Kentucky...er, from Kentucky...has a proposed amendment to the tax bill."

(Foghorn-Leghorn voice) "Yes I say...I say...Mr Speakah, it is imperative to the good people of Kentucky, including me, that donations to our fine athletic, er, academic institutions, which may, at times, allow donors priority for such benefits as season tickets to basketball, be given charitable status and eligible for a tax deduction."

And the SEC caucus and Texas delegations roar with approval.