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Should huge college endowments pay tax?

A Massachusetts proposal, the first of its kind, would impose a 2.5 percent tax on the portion of endowments above $1 billion.

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With nine of its colleges and universities boasting endowments above $1 billion, Massachusetts is now center stage in the emerging national debate over whether wealthy schools are doing enough to justify their tax-exempt status.

The reason for the spotlight: a first-of-its-kind proposal to tax those large endowments in the Bay State.

It has caught the attention of some members of the US Congress because it goes well beyond discussions there that have so far focused on increasing transparency and pushing well-endowed schools to spend more to offset costs.

"Two things are on a collision course: The public anxiety about the cost and affordability of college is very, very high, while [wealthy institutions] ... are sitting on what appears to be huge pots of money," says Patrick Callan, president of the National Center for Public Policy and Higher Education in San Jose, Calif.

The Massachusetts proposal would impose a 2.5 percent tax on the portion of endowments above $1 billion.

"There is an exorbitant amount of wealth that has been generated with these endowments, especially in the case of Harvard and MIT," about $35 billion and $10 billion, respectively, says state Rep. Paul Kujawski (D), who proposed the tax plan in part because the state is facing a $1.3 billion budget gap. "When is a nonprofit considered not a nonprofit?" he asks.

The precedent it could set worries college officials.

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