15 March 2019

Targeting Higher Education Donors Goes Too Far

by Sean Parnell, Vice President of Public Policy, The Philanthropy Roundtable

Senator Ron Wyden of Oregon has been a longtime champion of civil society, often taking the lead in helping to preserve and expand charitable giving during his many years in office. However, the senator’s proposal earlier this week to deny the charitable tax break to donors giving to colleges and universities where their children are applying or enrolled would be a mistake. A mistake with serious repercussions for higher education giving.

The Hill on Wednesday reported on Sen. Wyden’s plans:

Sen. Ron Wyden (D-Ore.), the top Democrat on the Senate Finance Committee, announced Wednesday he will introduce legislation that ends tax breaks for contributions to colleges and universities before or during enrollment of the donor’s child…

“This is yet another example of how the tax code helps the wealthiest Americans get even further ahead, and I will soon be introducing legislation that would end the tax break for donations made to schools before or during the enrollment of children of the donor’s family,” he added. “Middle-class families don’t have access to this back door for their children. If the wealthy want to grease the skids, they shouldn’t be able to do so at the expense of American taxpayers.”

Sen. Wyden’s proposal is in response to the recently-revealed scandal in which admissions to a number of elite universities – Georgetown, Stanford, University of Southern California, and Yale among them – were rigged to help the children of wealthy people get in. The two main schemes appear to involve cheating on standardized tests and getting applicants identified as recruited walk-ons to athletic teams.

The Wyden legislation is not addressing these abuses of the admissions process. Instead, it focuses on a complaint that wealthy families are often able to make substantial donations to a college or university with the hopes of favorably influencing the admissions office, should their child seek admission.

While the practice deserves scrutiny and can be abused, what Sen. Wyden is proposing seems like a dramatic over-reaction that would damage the fundraising abilities of all colleges and universities – some of the very same organizations the senator has worked to protect from such overreach throughout his career. Depending on the details, for example, it would provide a significant disincentive for alumni to donate to their alma mater.

Consider UCLA, one of the schools involved in the scandal. In 2016, it raised $664 million from about 79,000 givers, roughly two-thirds of which were alumni. Now imagine telling the 50,000-plus alumni who contributed that, if they have children who would like to one day attend UCLA, their gifts aren’t tax-deductible. Or the family foundation they established in part to support higher education isn’t allowed to qualify for a charitable deduction for a contribution to their alma mater.

It’s not uncommon for parents to hope their children will follow in their footsteps, including attending their alma mater. Many parents want to support their alma mater and share the pride they have in their school with their child. Eliminating this tax deduction is a bridge too far; it will hurt those families and the schools. So many small, private liberal arts colleges are often struggling to keep their doors open and state funding of public colleges and universities is in many cases below what it was a decade ago. Now is not the time to cut off alumnae support.

Eliminating the tax deduction would reduce giving, plain and simple – if there’s any doubt, look at the hit to giving that seems to be occurring as a result of millions of Americans losing the charitable deduction as a result of changes to the tax code in 2017.

There’s a lot to criticize about the higher education admissions process, particularly at selective institutions (different people with different perspectives will have wildly different ideas about what should be criticized, I suspect). And Sen. Wyden is right to be concerned about donors receiving a somewhat-tangible benefit in seeing their children admitted to a prestigious university that they otherwise might not get into. He should be applauded for looking for ways to curb such abuses, but the idea that has been floated would damage the ability of colleges and universities to raise funds from alumni, and it would ultimately hurt students of all backgrounds by diminishing the diversity and vibrancy of American higher education.