Salon: The 1 percent’s Ivy League loophole

Elizabeth Stoker (@e_stoker) and I had a post over at Salon today about tax subsidies for alumni donations used to grease the wheels of legacy admissions. Here is an excerpt:

But if this is true, then alumni donations are not donations at all. Rather, they’re implicit transactions: alumni pay universities and receive additional admissions consideration for their children in return. That is the quid pro quo of the donation-legacy arrangement.

Yet, curiously, the Internal Revenue Service does not treat alumni donations as transactional payments. Instead, it treats them as charitable giving. As a result, alumni that make such donations are entitled to deduct the amount of their donation from their income for tax purposes. In so doing, the richest alumni receive a tax subsidy of 40 percent of the amount of their donation. That is, the public ultimately funds as much as 40 percent of any given legacy admissions payment.

Under most understandings of charity, it is not clear why any donation, alumni or otherwise, to an elite educational institution should be considered charitable. Top tier universities like Harvard and Princeton, although nonprofits, charge high tuitions and enroll nearly 25 rich students per each poor student. In any non-educational context, few would call an organization with similar characteristics a charity. But the case for alumni donations being charitable is even thinner. Because alumni donations purchase improved admissions chances, they violate the most fundamental rule of charity, namely that it not enrich the giver.

Read the rest.