Watson Institute at Brown University
Stone Inequality Initiative

The Ivory Tower Tax Haven: The State, Financialization, and the Growth of Wealthy College Endowments

Popular anxiety about economic inequality has been compounded by the lavish consumption of the super-rich. In the domain of higher education, there are parallel signs of growing popular resentment towards perceived excesses at the wealthiest private colleges. Consistent with these public perceptions, I argue that private colleges with substantial endowment wealth have increasingly become ivory tower tax havens. I use new college-level data going back to 1976 to show that endowment growth at these colleges has been supported by a three-part federal tax expenditure that I estimate as averaging $19.6 billion per year in 2012. The growth of benefiting endowments contributed to new organizational inequalities in U.S. undergraduate enrolling institutions. For example, private institutions in the 99th percentile for endowment wealth per student increased their annual spending per student from endowments by 751% from $9,724 in 1977 to $92,736 in 2012. At the same time, these wealthiest schools have kept flat the overall number of undergraduates and the share of undergraduates from low-income households. I use the findings to update theories of how the U.S. state supports U.S. higher education in ways that amplify inequality for the new era of finance. This illuminates a new dimension by which the interlocked hands of the state and financialization work together to widen socio-economic divides.