The college--endowment racket.

IN the United States, almost everything is taxed. Sales taxes apply to the things we buy, property taxes apply to the things we own, and income taxes apply to checks we receive. Higher education is one of the few areas exempt from this ubiquitous taxation. The earnings of colleges and universities are, unlike yours and mine, untaxed.

Accordingly, our institutions of higher learning have accumulated enormous riches, as can be seen in the nearby chart. It shows how much money per student 15 institutions can earn on their endowments each year, depending on the rate of return. (These institutions have the largest per capita endowments.) Princeton's annual yield exceeds $100,000 per student. Swarthmore College, my alma mater, has an annual cash flow equal to about $50,000 per student.

A fascinating new study by Richard Vedder, a professor at Ohio University and a fellow at the American Enterprise Institute, investigates the public-policy rationale for granting universities tax-free status. His review of the literature suggests that keeping universities tax-free does not equalize opportunities, as advertised.

Vedder cites a recent study by the National Center for Education Statistics that followed the post-high-school progress of mathematically talented students from the high-school class of 1992. The study found that, even among these students, socioeconomic status played a big role in college-graduation rates. By 2000, fully 74 percent of the more affluent ...