More on Shrinkage, Hillsdale & Christmas Cheer

Author: David R. Kotok, Post Date: December 23, 2017
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Many readers (copied below) responded to our commentary that described the attempt of Senator Pat Toomey (R-Pa) to “carve out” a special provision in the tax bill for Hillsdale College in Michigan.

I will start by noting that all schools are getting tax subsidies, because the federal government pays them by allowing donors a tax deduction. Permitting a tax deduction for a contribution to a school endowment means the taxpayers are being forced to contribute to that school. That is the same treatment for Harvard as for Hillsdale. Why not level this playing field? Opting out schools that don’t take federal subsidies is not the answer. I have seen enough endowment fund misdeeds and mismanagement to conclude that they need to all be treated equally. And I’ve witnessed so much embedded cronyism that it’s clear to me they need regulation and oversight. And a level playing field.

Hillsdale is not unique. Was Toomey pandering to his Pennsylvania constituency? Is he a product of one of the schools he wanted to favor? Or was he on the board of one of them? Or did Pennsylvania schools have board members reach out to Toomey? Politico cites Hillsdale, but I think Toomey was reached by Pennsylvania folks, not Michigan folks.

Tom Roulston wrote:

“Don’t disagree with you at all. As I am now in the educational space helping college students figure out their career paths, I would love to see less debt and more colleges give need-based scholarships. Less federal student loans when students have no experience with debt or the future burdens of repayment (now backed by taxpayers) are going to be a part of a multi trillion dollar crisis at some point. Unfortunately the schools feed on that ‘free money’ that students get simply by applying with no ability to pay back.

“Not sure I understand why the tax even makes sense. It is penalizing the schools that are savers. The federally supported school loans crisis will be as bad or worse than many of the municipal bonds challenges you discuss in your regular writings. Then there will be no source for loans other than endowments.

“Hillsdale is one of the few colleges in the country that accepts no federal funding. Students’ scholarships are all from their own endowment with no other support by government assistance programs. Thus for scholarship they are self-supporting from their endowment. They therefore watch costs much closer than other schools and put a much higher priority on raising endowment funds than much other schools their size and therefore their endowment per student is higher than most other schools their size. This practice in my opinion is self-sustaining and commendable versus small college America capital spending and low savings and versus the elite schools that can afford both.

“I have no association with Hillsdale but have looked at their successful model from afar.”

Lee Dilley wrote:

“David, I looked at the link from Politico and it seems to me you left out one important fact. From the Politico article: ‘An amendment offered by Sen. Pat Toomey (R-Pa.) – and incorporated into a package of changes Republicans unveiled Friday evening to their tax plan, H.R. 1 (115) – would have exempted all colleges that don’t accept federal student aid from the endowment tax.’

“The Amendment clearly applies to any college that would make the decision to forego federal student aid in exchange for the endowment tax exemption. This may in fact be a good policy innovation. Clearly, you can tell that I would be less inclined to accept an ‘astute reader’s’ slanting the report in such a partisan way by leaving out the details of the Amendment itself. The sausage making amendment manipulation occurs on both sides of the aisle, as you know and have frequently observed in past columns. Separating the factual from the partisan is ever more difficult in this highly charged political environment. And I am only another reader, not the commentator – for which I applaud you for stepping up every day and taking that risk.

“Keep up the great work.”

Abigail Cook wrote:

“David, Julia went to Hillsdale for a semester, took the constitution course from the president and, full disclosure, we currently support a scholarship book fund in Michael’s mother’s name for students who can’t afford the additional expense.

“I believe there are only two, maybe three schools in the country that take NO federal funding, and those are Hillsdale and Grove City (tuition $23K and $20K annually). In fact, it was a famous supreme court case (1984 Grove City vs Bell) which they won, saying ‘NO’ to government monies…

“It’s ‘a matter of principle,’ David Whalen, Hillsdale’s provost, said of the college’s refusal to participate in federal financial-aid programs, which fall under what is known as Title IV of the laws that govern higher education. ‘The regulatory and bureaucratic intrusion that Title IV brings with it gets deeper and deeper with every passing year,’ Whalen said. ‘As everyone knows, where there is money there is control.’ (Atlantic article)

“[Whalen continued:] ‘For us, it’s basically a matter of consistency. Never since its founding in 1844 has Hillsdale College accepted a penny of aid from any institution of government – local, state, or federal. Never has it submitted to the heavy hand of government control that necessarily accompanies the soft hand of government help.’

“I would suggest you make a trip to Hillsdale, MI, visit the college and debate the subject with President Larry Arne and perhaps give a lecture on the state of endowment funding nationwide to the students. I could arrange it with the powers that be and would certainly attend and make an introduction of how we met and why I admire you so much.

“Let me know if you are interested because we are heading up there next weekend to see a special screening of the new Churchill movie ‘Darkest Hour’ and participate in a panel discussion with Gary Oldman.”

Michael Cook wrote:

“I think you are being rather too hard on Hillsdale College. It is one of a small group of colleges that accept no direct or indirect federal taxpayer support. Grove City College is another notable example of this principled refusal to permit intrusive government regulation of private institutions of higher learning.

“Whereas other colleges and universities depend heavily on taxpayer subsidies (by some estimates, American colleges and universities collect 30% of their tuition revenue in the form federal student loan proceeds), Hillsdale imposes no burden whatsoever on the federal taxpayer.

“It is no coincidence that Hillsdale and Grove City are able to deliver a first-class liberal arts education to [their] students at a significantly lower cost than other nominally private institutions. Absent a third-party payer, it’s hard to inflate your tuition at 2- or 3-times the rate of inflation annually.

“You might want to compare the annual tuition rates at Hillsdale and, say, Yale.”

Jim Sidinger wrote:

“David, I was in agreement with most of your commentary and with the importance of the press in protecting us from the chicanery of the lawmakers. But I believe your description, while totally correct as far as it went, left one important part out. I wish you had said:

“ ‘Only the intense, and unbiased scrutiny of a free press saves our citizens from many politically motivated giveaways like this. The best a citizen can do is to protect the freedom of our press and to encourage the press to report without inhibition or bias, to remain observant and vociferous, and to not give up.’

“As a Libertarian, I am not, by any means, a ‘Trump-ian,’ and I recognize that the folks at FOX are biased to the right as much of the rest of the press is biased left. But I believe a biased press, which has all of the other positive properties you mentioned, can be incredibly dangerous to our democracy. With bias, eventually, those on one side will never believe anything reported (no matter how true) and those on the other side will, without scrutiny, believe everything reported (no matter how false). What will happen to our informed electorate?

“ ‘A properly functioning democracy depends on an informed electorate.’ – Thomas Jefferson

“ ‘I have a bad feeling about this.’ – Han Solo”

Todd Knickerbocker wrote:

“David, I am a graduate [of Hillsdale]. If you have a chance, you should visit!
I look forward to comparing the Hillsdale 101 to Yale. I am sure they are not the same! ☺

“I was aware of the course…just hadn’t taken it yet.

“Thanks for sharing…when all is said and done, it’s too bad those against the policy can’t put together that maybe the endowment is so large for a small school BECAUSE of the lack of government!”

Alan wrote:

“Hi, Dave. As a small government advocate, I am in agreement with you that federal fund receipts is not a valid test for taxing. Unfortunately, we don’t have a small government. It’s huge and it’s progressive and it would be nice to see conservative colleges thrown a few scraps from the billions that are going to the colleges and universities that have morphed into progressive indoctrination camps.

“There are two issues I was trying to address and did a poor job of it: (1) the entire debate over how tax cuts will impact the federal budget deficit is a farce to begin with, yet a conservative amendment that might have actually reduced the deficit was singled out as political shenanigans; and (2) the bias of the press, in this case Politico. The bias is so ingrained and so ubiquitous and so obvious to Americans like me who are not progressives, that we are bewildered that normally intelligent people are so blind to it.

“Here is the relevant link to the C-Span transcript of the senate debate on the Toomey amendment (https://www.c-span.org/video/?438001-101/senate-passes-gop-tax-reform-51-49-vote&transcriptQuery=amendment&start=49270). Scroll down to the 13:41:39 mark for Toomey’s answer to Sen. Merkley. Toomey states that there are ‘…a number of colleges, including one in Pennsylvania…’ that would benefit from his amendment. The Politico article, from its headline to its content, was totally focused on Hillsdale and its connection to Betsy DeVos. As you will see from the transcript, Toomey did not decline ‘…to answer Democrats’ inquiries on the floor about which other schools would benefit.’ Politico just didn’t like his answer, so they ignored it. They took as gospel an easily fact-checked quote from an anonymous ‘Democratic aide’ that ‘only Hillsdale’ would benefit from the Toomey amendment, which is demonstrably false. Toomey also makes the argument I made about incentivizing other colleges to forego federal funding: ‘The idea here, and it is in this amendment, is that any college that chooses to forego federal funding for its students chooses not to be a burden on the taxpayers that way…’ I don’t blame you for thinking Toomey did not make that argument because Politico mislead you with its (intentionally?) inaccurate reporting.

“For a more recent example, pull up the transcript of the arguments before the Supreme Court yesterday on the ‘Cake Case,’ and today’s WSJ front page article on the arguments and questions from the justices. A WSJ reader would have a completely warped view of what actually transpired if the WSJ was her only source of ‘news.’ Unfortunately, the WSJ article and Politico’s Toomey amendment article are only two of hundreds each week in the mainstream media that twists statements and takes others out of context to push the progressive agenda as opposed to simply reporting the news.

“Freedom of the press is not under attack in America. The bias of the press is, and should be.”

A reader who wished to remain anonymous wrote:

“David, clearly there are two sides of the debate. Note that making the debate about whether or not a college receives federal money is one context and an improper one in my view.

“I think the debate is about federal taxation and tax policy on endowments. Regardless of whether or not it is a college and regardless of whether or not that college receives federal money. The donor gets the same deduction for a gift to Hillsdale as for a gift to HARVARD. The endowment in each GET preferred tax treatment by being tax-exempt entities.

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