Trump's Assault on Elite Colleges isn't all Wrong

Clad in his trademark red sweater, Hall of Fame college basketball coach Bobby Knight introduced Republican presidential nominee Donald Trump to an enthusiastic audience of supporters in late September 2016. “I’ll tell you one thing for damn sure,” Knight bellowed. “I know how to win and he’s going to be the best winner we’ve had in a long time.”

Trump emerged to the theme from Rocky, praised Knight’s incredible winning record, and then launched into a diatribe about elite colleges and universities. Two months earlier, Hillary Clinton had proposed to make public college free for middle-class families. Trump would have none of that. “Universities get massive tax breaks for massive endowments,” Trump said, to boos and catcalls. “These huge multi-billion-dollar endowments are tax free,” he explained. “But too many of these universities don’t use the money to help with tuition and student debt. Instead, these universities use the money to pay their administrators or put donors’ names on buildings or just store the money, keep it, and invest it.” The chorus of boos loudened. “In fact, many universities spend more on private equity managers than on tuition programs.”

Trump’s persistent attacks on elites were a major component of his electoral strategy and remained a key part of his message during his presidency and subsequent exile. Condemning elites — particularly in higher education — has long been a part of the GOP playbook, but it’s even more key today. Last November, Republican Senate candidate J.D. Vance delivered a half-hour speech at the National Conservatism Conference titled, “The Universities are the Enemy.” Vance accused universities of pursuing “deceit and lies.” To applause, he said, “I think if any of us want to do the things that we want to do for our country and for the people who live in it, we have to honestly and aggressively attack the universities in this country.” Vance’s would-be Senate colleagues Josh Hawley — like Vance, a graduate of Yale Law School — and Ted Cruz — a graduate of Harvard — routinely attack elites and elite institutions.

To some extent, elite colleges are simply collateral damage in the culture war. Indeed, the thrust of Vance’s speech is about the need to break through the indoctrination of the liberal intelligentsia — via what he calls “red pilling,” a reference to The Matrix — where the “fundamental corruption” at the root of the system, as Vance put it, can’t be unseen once seen. “So much of what drives truth and knowledge, as we understand it in this country,” Vance said, “is fundamentally determined by, supported by and reinforced by the universities in this country.”

But that’s not the whole story. Another line of attack is about access. It’s about who gets to be part of the elite, and whether America has gotten a fair return on the massive investment that it has made in elite colleges. For, difficult as this might be for liberals to hear, almost everything Trump said to the crowd Bobby Knight had warmed up was true.

“I’ve gotten increasingly incensed at the inequality in American higher ed,” another critic of the private college tax exemption told NPR’s Scott Simon in 2015. “There’s a handful of schools that just have too much money. You just have to walk through the Yale campus to see what money will buy you, which is a country club, right?” Simon’s guest explained that endowments weren’t inherently bad — they could transform underfunded schools. “It’s one thing if a school has an endowment of $500 million that they are stretching a million different ways to meet the needs of its students, to say that as a society, we should allow them to escape taxes so they can spend their money on education,” he said. “But that logic does not hold when you’ve got $35 billion in the bank, as Harvard does.” (Today it’s $53 billion.) “I think they have to stand up and say, at the very least, ‘We do not deserve to have tax-exempt status for our endowments.’”

Sound like Trump?

Simon’s guest was Malcolm Gladwell, the best-selling journalist, podcaster and public intellectual.

For generations, elite colleges have been given a pass in accounting for what they’ve done in exchange for the massive benefits that they have received. The bill has come due. Soon, elite colleges are going to have to answer two simple questions.

Why are they exempt from taxes?

And what has America gotten in return?

Anyone searching for an answer to the first question in the historical record will be sorely disappointed. Law professor John Colombo traces the exemption to a 1601 English law deeming “schools of learning” charitable in nature. In colonial America, colleges were generally spared from taxes because of their religious ties. Most — including Harvard, Yale, Brown, Dartmouth and William & Mary — were chartered with the aim of training ministers. When Congress imposed the first federal income tax in 1894, it maintained the exemption for religious and educational institutions without any debate.

Today, almost every state has a law or constitutional provision exempting colleges and universities from state, property and income taxes. Many so-called “need-blind” colleges also benefit from an antitrust exemption, which allows them to collaborate on how they determine student need and, hence, financial aid. That exemption, which is set to expire at the end of this month, is the subject of a lawsuit based, in part, on the apparent contradiction between claiming not to consider financial need while giving preference to the children of donors, faculty members and graduates of the college.

It’s easy enough to imagine why the tax exemption wouldn’t have been a source of controversy in the 1890s. Endowments were small potatoes. For most of its history, Yale, like its peer institutions, invested its modest holdings conservatively, chastened by an early toe-stubbing, when their leadership invested nearly the entire endowment in a bank run by former university treasurer and cotton gin-inventor, Eli Whitney. The bank promptly went bankrupt, costing Yale over 90 percent of its $23,000 endowment and plunging New Haven into depression. After that, it was pretty much all belt and suspenders. In 1980, Yale still had more than half its money in stocks, bonds and cash.

Then, David Swensen, a veteran of Salomon Brothers and Lehman Brothers, took over the university’s portfolio and changed the game. The so-called “Yale model” emphasized diversification. Within 20 years, only 10 percent of Yale’s endowment was invested in U.S. marketable securities. Their holdings included hedge funds, real estate and even timber. Yale’s competitors naturally followed suit. It may surprise you to know that Harvard’s portfolio includes 10,000 acres of California vineyard.

Over time, elite college management companies began to look more and more like Wall Street firms. Trump’s claim about private equity managers is entirely accurate. In 2014, Yale paid nearly half a billion dollars in management and performance fees, about triple what it spent on financial aid. While it’s not officially part of the Yale model, elite colleges also started to get quite aggressive about avoiding taxes. The “Paradise Papers” — a 2017 data breach at the international law firm Appleby that led to the leak of some 13.4 million electronic documents — exposed many elite universities for parking cash in offshore tax havens to cheat Uncle Sam.

The results have been stunning. In 1980, before Swensen got started, Yale’s endowment was worth $674 million. Last year, it was valued at $42.3 billion — representing a gain of approximately 6,275 percent. During the two years of the pandemic, Harvard’s endowment grew by approximately 30 percent. If it sustains the rate of growth it has maintained for the past several decades, Harvard’s endowment will top $1 trillion shortly after the turn of the century. If Harvard were a nation, its cash reserves would rank forty-second, just behind Romania, but ahead of Kuwait. Princeton has endowment assets of roughly $4.6 million per student. As the attorney-economist Bob Litan put it to me last year — before joining the legal team in the class action against the “need-blind” colleges — these endowments are “mind-fuckingly large.”

And it’s in significant part thanks to the generous support of the American taxpayer. University of California-Merced professor Charlie Eaton estimates that the tax break costs more than $20 billion per year. To put that into perspective, that revenue would cover between half and two-thirds of what the Committee for a Responsible Federal Budget estimates the cost of President Joe Biden’s student loan forgiveness plan to be, and about twice as much as the estimated cost of making community college free.

So what has America gotten in return?

Not an engine of class mobility. Elite colleges promote precious few kids out of poverty. Just 2 percent of Princeton students come from families in the lowest income quintile. In their groundbreaking study of the relationship between college and intergenerational mobility, Raj Chetty and John Friedman’s team ranked colleges by “mobility rate,” which they defined as the product of access — the percentage of students admitted from the bottom quintile — and success — the percentage of students from the bottom who made it to the top. Among colleges with more than 5,000 students, eight of the top 12 ranked schools are part of the CUNY system, the City University of New York. All but one is a public university. MIT topped the “Ivy-Plus” colleges (which Chetty and Friedman define as the eight Ivy League schools plus MIT, Duke, Stanford, and the University of Chicago). It came in 1,288th.

Elite colleges are, rather, an engine of class stratification. The number of rich children they admit dwarfs the number of poor. At Harvard, for example, more students come from families making over $500,000 per year than under $40,000. (By contrast, at John Jay College of Criminal Justice, the CUNY college where I teach, the median family income is $41,900. Overall, 60 percent of CUNY’s 270,000 students come from families earning less than $30,000 per year.) When one looks at the Chetty-Friedman data through the lens of preventing downward mobility, a very different picture emerges. Roughly speaking, for every poor kid Princeton promotes out of poverty, it keeps 40 rich kids rich.

Moreover, these colleges act as gatekeepers to super-elite jobs that set the national agenda. As Northwestern University’s Lauren Rivera describes, attending an Ivy-Plus college is a prerequisite for landing a job at a top-tier investment bank or management consulting firm. This helps send their graduates into the stratosphere of wealth. Ten years after graduation, about 23 percent of Princeton graduates will be among the country’s wealthiest 1 percent — about 64 times as many as at my college.

Recognizing the power of elite degrees, many affluent, predominantly white parents flee cities for wealthy suburbs once they have children. They’re chasing access to lacrosse teams, science programs and the sort of “distinguishing excellences” that elite colleges arbitrarily choose to value, and which affluent suburbs are uniquely able to afford. Many of those who don’t move to fancy suburbs will send their children to a so-called independent school, where annual tuition approaches $60,000. Again, elite colleges drive the train by grossly favoring private school graduates in admissions. As Caitlin Flanagan reported last year in the Atlantic, while less than 2 percent of high school students attend an independent school, their graduates comprise more than a quarter of Princeton, Brown and Dartmouth’s entering classes.

To the extent that elite colleges acknowledge these gross inequities, the story they tell is that they’re reproducing the underlying conditions in American society. Elite colleges look the way they do, they say, because America looks the way it does.

What if the causal chain is reversed?

What if America looks the way it does because elite colleges look the way they do?

And we’ve been footing the bill.

This tax exemption might be justifiable if elite colleges did good in other sorts of ways. They don’t. One definition of doing good would be to steer college students into public service. Yet in a survey of Harvard’s class of 2020, 63 percent of seniors entering the workforce said they planned to go into consulting, finance or technology. Just 4 percent intended to enter public service or work for a non-profit organization. This is no accident. Research by the sociologist Amy Binder shows that the overwhelming majority of students enter college undecided on a career but gravitate toward finance after elite colleges show them no obvious alternative to working on Wall Street.

Promoting racial diversity would be another type of good, but elite colleges are overwhelmingly white. Overall, the Black population at elite colleges hasn’t significantly increased since the 1970s. In fact, the rate of Black admissions has so steadily hovered around 8 percent that Shaun Harper, the executive director of the Race and Equity Center at the University of Southern California, has accused Ivy League colleges of collusion. “It just seems to me that there has been some determination about how many Black students are worthy of admission to these institutions,” Harper said. “It’s just too similar.”

Perhaps most importantly, they don’t teach humility. Elite colleges pretend as if the higher education system rewards merit rather than affluence. Recently, a cottage industry has arisen of intellectuals — mostly professors at elite colleges — exposing the construct of “meritocracy” as a myth. But that construct didn’t emerge from the ether. It’s cultivated by the colleges themselves, which insist they’re admitting the best and the brightest rather than the rich and the richest. Shortly after assuming office, former Stanford president John Hennessy offered a typical message to the school’s entering freshman class — where the mean family income is around $472,000. “Our admission office is one of the best in the country,” Hennessy said, “and we don’t make mistakes!”

Problem is, if Stanford doesn’t make mistakes, it implies not only that their freshmen deserved to be there, but that everyone else does not. This is the downside of the meritocracy myth. It implicitly frames disadvantage as a failure of skill and effort and leads to a sort of politics of humiliation that legitimizes grievances with the system. From here, it’s easy enough to draw a straight line to Trumpism.

If there were a title in education politics for Person Most Ahead of Their Time, it would belong to Michael Dannenberg. A former senior adviser in the Department of Education under President Barack Obama, Dannenberg is today a senior fellow with the College Promise campaign, a non-profit fighting for affordable post-secondary education. In the summer of 2001, as a young staffer to Massachusetts Sen. Edward Kennedy, Dannenberg audaciously proposed that his boss take on legacy preference at universities — the leg up in admissions that elite colleges routinely give to the children of their own alumni. Nearly everyone who worked for Kennedy opposed the idea, but Kennedy — a legacy and Harvard graduate — liked it. Soon thereafter, he became the first, high-profile elected politician to repudiate legacy, condemning it to the journalist Daniel Golden as an “anachronism.” Today, the practice is almost universally acknowledged as grossly inequitable by everyone except the elite colleges themselves.

Dannenberg, still youthful and optimistic 20 years later, says that the day of reckoning is coming for elite colleges. He has a close eye on the Ohio Senate race between Vance and Democratic Rep. Tim Ryan. “I think whoever wins the race would be wise to take on the unfair admissions practices of so-called ‘elite colleges,’” Dannenberg told me. Vance, of course, has already tapped into the Trumpian antipathy for elite institutions. But Dannenberg thinks the issue is also a “natural” for Ryan. “Ryan has tried to position himself as a different sort of Democrat, one who’s in touch with the historic populist past of the party,” Dannenberg said. “As someone who wants to resurrect the Bobby Kennedy coalition, it’d be wise for him to take on this issue. Frankly, it’s good politics for anyone in either party.”

As Dannenberg sees it, the most effective way to challenge admissions practices is through the tax exemption. “Taking on the unfair admissions practices of the so-called ‘elite colleges’ via tax policy is the smartest political move because the members of the congressional committees that oversee taxes are less likely to be captured by the interests of elite colleges than the members of the education committees,” Dannenberg said. Indeed, Chuck Grassley, a senior member of the Senate Finance Committee, has been on the issue since at least 2008, when he co-hosted a roundtable with liberal Democratic Rep. Peter Welch on college endowments. “Democrats,” Dannenberg says, “would be wise to get in front of the issue.”

Dannenberg has in mind the lesson of 2017, when the Republicans’ sweeping tax overhaul imposed a 1.4 percent excise tax on universities with assets of greater than $500,000 per student. The provision was widely perceived — like the law’s curtailment of the state and local tax exemption — as a beat down of the blue state, college-educated elite who rejected Trump and Trumpism most emphatically. Notably, even as wealthy colleges got slammed, socioeconomically disadvantaged kids got nothing. In fact, Trump repeatedly proposed cutting Pell Grant funding, at one point proposing to dip into the program’s reserves to subsidize NASA. Today, Pell Grants cover less than one-third of the costs of attending a public four-year college, and just 13 percent of the cost of a private institution.

If progressives are serious about shrinking economic inequality, they could use the tax exemption on college endowments as leverage for changes to make a meaningful difference in the lives of underprivileged students — rather than principally as a culture war cudgel like the GOP. The exemption could be conditioned on colleges being transparent with data about the socioeconomic makeup of their student bodies, which all currently guard like a state secret. (Chetty and Friedman relied on IRS data.) They might also be required to spend a minimum of their endowment on financial aid or to admit a minimum percentage of socioeconomically disadvantaged students.

These measures would neither individually nor collectively end the gross inequities of access in American higher education. They would only marginally change the incentives of the affluent to move to exclusive suburbs or to send their children to private schools. And they’d do nothing to change damaging narratives of merit — or lack thereof — that elite colleges perpetuate by fostering the meritocracy myth.

But it’d be a start. Dannenberg likes to share an aphorism that he learned from his first boss — the late Rhode Island Sen. Claiborne Pell, for whom the federal aid program is named. “Sometimes,” Dannenberg recalled Pell saying, “you get a loaf of bread one slice at a time.”

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By: Evan Mandery
Title: Trump’s Assault on Elite Colleges Isn’t All Wrong
Sourced From: www.politico.com/news/magazine/2022/09/27/trump-elite-colleges-taxes-00058697
Published Date: Tue, 27 Sep 2022 03:30:00 EST

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