Judge Posner takes up my argument

In the course of a post on Should Universities Have to Spend 5 Percent of Their Endowment Annually? Judge Richard Posner makes these observations:

The difficult question involves the federal income tax exemption for donations to universities. It is a legitimate question why the federal taxpayer should be subsidizing Harvard, with its $35 billion endowment. The only justification would be if the type of research and teaching that goes on at Harvard or the other major universities generates external benefits that, were it not for the subsidy, would be smaller by more than the subsidy. This seems unlikely.

. . .

Conservatives, who inveigh against big government, should not ignore tax subsidies. There is no economic difference between giving universities federal money and allowing donors to universities to deduct their donations from their federal income taxes. If the exemption were repealed, tax rates could be reduced without any increase in government spending, and in fact government spending would be reduced, since the cost of administering the exemption and the higher cost of collecting taxes when tax rates are higher would be eliminated. Hence all tax subsidies deserve close scrutiny. I am not convinced that the tax subsidy for donations to universities would survive that scrutiny.

Posner does not believe that the 5% spending rule that applies to foundations is appropriate for Universities, because they are already subject to market competition for the best students and faculty.