May 7, 2018 OUPblog - Congress added Section 4968 to the Internal Revenue Code in the comprehensive tax legislation adopted in December. Section 4968 imposes a tax on the investment incomes of some college and university endowments. Critics of Section 4968 disparage this new tax as selectively targeting what are widely perceived as wealthy, politically liberal institutions such as Harvard, Yale, Princeton, M.I.T., and Stanford.

As I have argued, there is a strong tax policy case for taxing the net investment incomes of all charitable endowments including donor-advised funds, community foundations, all educational endowments, and foundations supporting hospitals, museums, and other eleemosynary institutions. Like corporations and private foundations that currently pay revenue-generating income taxes, charitable endowments use public services and have capacity to pay tax. Such traditional tax policy criteria including  equity and economic neutrality counsel that similar entities and persons should be taxed similarly. Just as corporations and private foundations pay income taxes to support federally-provided social overhead, by analogy, all charitable endowments, as similar entities, should pay similar taxes as well.

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