In 2002, Meg Whitman (Princeton class of ‘77), then president of eBay, pledged $30 million to her alma mater to be put toward building a dorm in her own name. The ultimate cost of the 500-student dorm, which required “skilled masons to cut thousands of pieces of stone” and featured three-inch-thick oak doors, worked out to about $200,000 per bed. Despite parting with $30 million at the time, one economist estimated that the real cost of the donation to her was much less: $20 million, thanks to the tax exemptions that come with donating to a university. In essence, the U.S. Treasury covered the $10 million gap.
The government—and thus, taxpayers—give a surprising amount of money to elite private colleges, a lot of which is hard to see because it comes in the form of tax deductions like Whitman’s. Equally hard to see, and perhaps even more lucrative, is that the federal government doesn’t tax the income that universities earn on their billion-dollar endowments. Some of these deductions exist to promote research; others exist because colleges, as institutions, make commitments to serve the public good.