Henry Olsen & Alex Muresianu: Should University Endowments Be Taxed?

Summary

Future of Freedom Podcast Summary: "Henry Olson & Alex Morishanu: Should University Endowments Be Taxed?"

Release Date: July 10, 2025 | Host: Scot Bertram | Produced by Franklin News Foundation

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Introduction

In the July 10, 2025 episode of Future of Freedom, host Scot Bertram delves into the contentious issue of taxing university endowments. The conversation features two distinguished guests with opposing viewpoints: Henry Olson, Senior Fellow at the Ethics and Public Policy Center and host of the Beyond the Polls podcast, and Alex Morishanu, Senior Policy Analyst at the Tax Foundation. This episode navigates the complexities of endowment taxation, exploring its implications for revenue generation, fairness, and the operational dynamics of higher education institutions.

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Henry Olson’s Perspective: Advocating for Endowment Taxation

Revenue Generation and Fairness

Henry Olson opens the discussion by highlighting the dual motivations behind taxing university endowments: revenue generation and ensuring fairness within the nonprofit sector. He states:

“We need both the revenue and it is a matter of fairness... [Taxing endowments] would level the playing field between these alleged nonprofits, but in fact tax-protected subsidized entities.”
(00:52)

Olson underscores the significant assets held by large nonprofits, arguing that these institutions pay a disproportionately small fraction in taxes compared to for-profit corporations. By approaching an approximate 21% marginal tax rate—the same rate applied to for-profit entities—he believes the nonprofit sector can achieve greater equity.

Targeting Large Institutions

Olson advocates for a targeted approach, focusing taxation on institutions with substantial endowments. He remarks:

“Entities that don't need government support in order to maintain a substantial level of operation should not get it.”
(02:02)

He differentiates between smaller nonprofits, which benefit from tax exemptions to facilitate charitable activities, and large entities like Harvard or the Gates Foundation, which possess multibillion-dollar endowments that render them less dependent on such benefits.

Impact on University Operations

Addressing the operational dynamics, Olson connects large endowments to the proliferation of administrative roles and non-teaching positions within universities:

“Those are the sort of things that efficient businesses always have to keep a lid on... nonprofits and large colleges and universities... stop getting the free pass to run an efficient business.”
(04:19)

He argues that substantial endowments allow institutions to support extensive administrative structures without the market pressures that typically enforce efficiency in for-profit businesses.

Allocation of Tax Revenue

On the utilization of the generated tax revenue, Olson emphasizes fiscal responsibility:

“We need to start reducing the amount that we borrow... I think that what we should be doing is trying to reduce that.”
(05:24)

He advocates for using the funds to address the national deficit, suggesting that taxing large endowments is a strategic move to enhance federal financial health.

Constitutional Considerations and Tax Structure

When discussing the structure of the proposed tax, Olson prefers taxing investment earnings rather than the endowment principal itself, citing constitutional concerns:

“Taxes like what Elizabeth Warren proposes are wealth taxes, they are arguably not constitutional.”
(07:51)

He contends that taxing unrealized income could infringe upon constitutional protections, advocating instead for a focus on taxable investment income to ensure legality and fairness.

Economic Impact

Addressing potential economic repercussions, Olson asserts that taxing large endowments would not harm the economy:

“Tax would not harm the economy... This would simply... let markets actually allocate capital efficiently.”
(11:38)

He suggests that reducing tax preferences for large nonprofits would encourage a more efficient distribution of capital, ultimately benefiting the broader economy.

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Alex Morishanu’s Perspective: Opposing Endowment Taxation

Challenges in Taxing Nonprofits

Alex Morishanu begins by questioning the feasibility of taxing university endowments within the current nonprofit framework:

“Nonprofits by definition do not have profits and accordingly they're an unsuitable sort of tax base.”
(14:09)

He points out the complexity in establishing a coherent tax base for organizations that are structured to reinvest their revenues rather than distribute profits, making traditional corporate tax models inapplicable.

Value Reflected in Large Endowments

Morishanu challenges the notion that large endowments indicate a lack of need for tax exemptions, arguing instead that they often reflect the institution’s value and alumni satisfaction:

“The reason why a school usually has a very large endowment is that they provide good value to their students.”
(17:10)

He contends that substantial endowments are typically the result of generous alumni contributions from successful graduates, suggesting that these funds are a testament to the institution’s positive impact rather than a sign of excess.

Competition and Market Distortion

Addressing concerns about large endowments undermining market competition, Morishanu offers a counterpoint:

“It's mostly driven by declining demand that mostly associated is related to population level effects.”
(20:03)

He attributes the closure of smaller institutions to broader demographic trends and declining demand for higher education, rather than the dominance of universities with large endowments.

Student Loan Issues

In discussing student loan debt and defaults, Morishanu clarifies that these issues are not directly tied to the size of university endowments:

“Universities with really large endowments are not the universities that have these really high dropout rates.”
(21:35)

He argues that institutions facing high student loan defaults typically do not possess substantial endowments, indicating that an endowment tax would not effectively address the root causes of student debt issues.

Implementation Challenges

Morishanu acknowledges potential difficulties in implementing an endowment tax but notes that existing excise taxes on endowment income have not proven excessively burdensome:

“I don't think the endowment excise tax doesn't raise a whole lot of revenue... I don't think that it has been unworkable for colleges.”
(24:16)

However, he also concedes that higher tax rates might introduce new challenges, such as fulfilling donor restrictions on endowment funds.

Potential Adjustments by Institutions

Addressing the likelihood of universities restructuring to avoid taxation, Morishanu remains uncertain about the extent of such efforts:

“If you say you look at the tax base now, do you expect shifting of the structure of an endowment to reduce that taxable base...?”
(25:07)

He acknowledges that while institutions may attempt to reorganize their endowments to minimize tax liabilities, the effectiveness of these strategies remains speculative.

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Conclusion

The episode of Future of Freedom presents a balanced exploration of the debate surrounding the taxation of university endowments. Henry Olson advocates for targeting large endowments to generate revenue and promote fairness, emphasizing the need to reduce federal deficits and ensure that large nonprofits contribute their fair share. Conversely, Alex Morishanu raises concerns about the practicality and fairness of applying traditional tax models to nonprofit educational institutions, arguing that large endowments often reflect institutional success and alumni support rather than excess wealth.

The discussion underscores the complexity of balancing fiscal responsibility with the preservation of educational excellence. As universities continue to navigate financial sustainability and societal expectations, the debate on endowment taxation remains a pivotal issue with far-reaching implications for higher education and public policy.

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Transcript

[Scott Bertram]

Welcome to Future of Freedom. I'm your host Scott Bertram. Future of Freedom is a production of Franklin News Foundation. To support this show, go to franklinnews.org donate we bring you interviews today from different sides of debate the over taxing university endowments. In a little bit we'll be joined by Alex Morishanu, senior policy analyst with the Tax Foundation. First we talk with Henry Olson. He is senior fellow at the Ethics and Public Policy center. Also host of the beyond the Polls podcast. Wherever you find your audio. He's also on Xenryolsen Eppc. Henry, thanks so much for joining us.

[Henry Olson]

Thanks for having me.

[Scott Bertram]

On Talking about the idea of an endowment tax in today's conversation, what reason would we want to pursue one revenue generation? Fairness, accountability. Why would we want to look at an endowment tax?

[Henry Olson]

I think endowment is something that large nonprofits hold in order to support their operations. And we need both the revenue and it is a matter of fairness. We need the revenue because we have multi trillion dollar deficits and these institutions multitrillion dollars in assets but spend, I mean pay only a tiny fraction in taxes. And this would level the playing field. The closer you got to a 21% marginal rate, which is what for profit corporations pay on their earnings, the more you level the playing field between these alleged non or purported nonprofits, but in fact tax protected subsidized entities.

[Scott Bertram]

Would something like this, at least in your mind, apply to all schools and universities, all foundations, just those with large endowments? Who would it apply to?

[Henry Olson]

Well, I would prefer taxing those with large endowments, which is to say the purpose of a nonprofit exemption is to help channel donations and help nonprofit charitable activity. And it should go to people who need that, you know, that small colleges or small service providers I think need that sort of indirect assistance. But when you're talking about places like Harvard or the Gates foundations that have like 50 to 60 billion dollars in funds, they don't need this. They don't need it in order to do their activities any more than GM needs a 1.4% corporate income tax in order to invest. I think that entities that don't need government support in order to maintain a substantial level of operation should not get it. And that applies to direct subsidies and it applies to tax benefits like the lower rate and the nonprofit exemption for.

[Scott Bertram]

Some of these schools. And I saw in the news recently Harvard University has increased the income threshold. They're going to say no tuition needed if your income is, I believe it's $150,000 or less at this Point. If there are actions taken on behalf of some of those schools to, say, spend, maybe it's a minimum amount on student services or a minimum amount of that endowment on financial aid, is that a move in the right direction? Would that perhaps do away with the need for an endowment tax?

[Henry Olson]

No, because money is fungible. What they just do is allocate the endowment to those sort of things and use their other revenues in order to support the other things. What you want to do is send a clear message that if you do not need this to operate, then what you do not need is the tax benefit. And if what that means is that they lay off support staff, or what it means is that they make their business run more efficiently, well, guess what? That's what the rest of us do every day. And it's time that nonprofits and large colleges and universities stop getting the free pass to run an efficient business and start having to run an efficient business like the rest of us.

[Scott Bertram]

So do you see a direct connection here between schools with larger endowments and the explosion in administrative positions, non teaching positions, support staff, DEI programs at particular colleges and universities? Are those two things connected?

[Henry Olson]

Absolutely, they're connected. And certainly an institution without a large endowment can support those things. But it's much easier to do it if you have a large endowment, because once you have a large endowment, you are independent of the marketplace. You are subject to the problems of the financial marketplace, where you are independent of the consumer market base. And that allows you to do things that consumers may not value as much. And consequently, those are the sort of things that efficient businesses always have to keep a lid on. Because if they're not providing something that the consumer will ultimately find value in, it is something that is a drawing on the bottom line. Non large nonprofits like Harvard do not have that constraint and consequently do not limit those sort of hirings.

[Scott Bertram]

How should this tax revenue be used if an endowment tax is enacted?

[Henry Olson]

My preference would be that we need to start reducing the amount that we borrow. You know, we have a massive $1.5 to $2 trillion annual deficit at a time when the economy is relatively healthy. That is bad for us. It means that we're adding tens of billions of dollars in interest payments every year because we don't want to pay our way. And I think that what we should be doing is trying to reduce that. We need to reduce spending, of course, but we also need to reduce revenue. And the best place to reduce revenue without directly hurting in incentives to produce is on people who are already getting tax benefits in Other words, the people who aren't paying their fair share. Warren Buffett is famous for saying, I don't think my secretary should pay a lower marginal. I should pay a lower marginal income tax than my secretary. Well, you know, I don't think Harvard should pay a lower marginal income tax than Warren Buffett's secretary either. But yet they do.

[Scott Bertram]

You say early in this piece, by the way, you can read Tax the [e-mail] that site should be raised to include large grant making nonprofit foundations. We've talked a lot about universities, colleges so far. Why are nonprofit foundations also within the scope of this request?

[Henry Olson]

Because most of them are actually about the exact same thing. They are tax protected. Donations are not taxed. They are tax deductible from the donor. Their income is taxed at an incredibly low rate of somewhere around a little over 1%. And the vast majority of these grant making foundations do not directly support services. They give money to people who do research. In other words, this is money that is spent by people with graduate degrees to support other people with graduate degrees. There's nothing necessarily that is invaluable about that. I've spent my life, a lot of my life at such institutions. But it doesn't mean it needs to be subsidized by the taxpayer either.

[Scott Bertram]

This proposal or at least many proposals talk about the tax on the investment earnings. Is there a need to consider a tax on the endowment itself? In essence, a twist on Elizabeth Warren's wealth tax? A penny on whatever she says, A penny on every dollar past a billion. Something along those lines. Should the endowment itself be taxed, not just the investments earned on the endowment?

[Henry Olson]

I would prefer that you not. Taxes like what Elizabeth Warren proposes are wealth taxes, they are arguably not constitutional. Is that the United States federal government does not have the authority to lay taxes on unrealized income. In other words, income or money that you do not have available for use. And that's what a wealth tax is. So an endowment tax that would attack the level of the endowment rather than the earnings on the endowment, I think is arguably unconstitutional and certainly unfair. So I would only want to treat the nonprofit corporations on a level playing field with the for profit corporations when you're talking about wealthy institutions who don't need that sort of money in order to actually run the business.

[Scott Bertram]

Henry Olson with us, senior fellow at the Ethics and Public Policy Center. He's also host of the beyond the Polls podcast. And Henry, do you anticipate that universities might find a way to change their setup to work around an endowment tax.

[Henry Olson]

You know, what you want to do is create a tax that says things that amounts that you earn from your investments are taxed. Now, there's no proposal to eliminate the nonprofit status on these universities, which would treat all money as income. Money that you would take from overhead in federal contracts would then be taxed as income. Money that you would take from. From contracts to do research for private corporations, which, yes, universities do, would be taxed as income. Tuition would then be taxed as income. If they wanted to try and get around this to avoid taxes by shifting it in some way that's not technically covered, then I would say let's go after the nonprofit status that they want to pretend that they don't have Investment earnings from $50 billion amount of funds. Okay, well then they're not fair actors, they're not honest actors, and it's time to just say you really are in business, just like seal companies, just like Meta, just like Amazon, and we're going to treat you that way. And that means all your income is subject to tax minus all your expenses.

[Scott Bertram]

Okay? Speaking of a tax exempt status, I'm curious too, if you worry that if a endowment tax, if endowment tax ends up being enacted, that the left will respond in kind by perhaps looking at revoking the tax exempt status of, say, churches across the country. How do you differentiate between those two?

[Henry Olson]

First of all, there's no proposal to tax the retained earnings of churches. Secondly, you would arguably have a first amendment question there because the question is whether or not there is an implicit exemption that requires religious entities to have the free exercise of religion. But personally, I'm not terribly concerned if it is constitutional to do that. Certainly we've seen many clearly wealth maximizing institutions that are incorporated as churches. Scientology is one of the primary examples. But certainly there are many mega churches that somehow manage to bring in tens of millions of dollars a year and give people large salaries and support large incomes from supported projects. You know, if the pastor wants to run the church as a wealth maximizing entity, then the entity should be taxed as a wealth maximizing product. I don't. If that's the way the left wants to go, I wouldn't have a problem personally taking a look at that.

[Scott Bertram]

And Henry Olson, the endowment tax, or at least these proposals we've talked about today, would they have an effect on the economy, or is this the kind of tax that wouldn't necessarily harm the economy if enacted?

[Henry Olson]

Well, you know, no, tax would not harm the economy. Cutting spending would harm the economy. We keep our people employed by borrowing trillions of dollars from the financial markets every year, start to cut spending, people will lose their jobs. That will have a short term effect on the economy as it rationalizes. And by rationalizing I mean allowing capital to flow to its most efficient uses with as little government distortion as possible. What we've been doing with respect to these sorts of institutions is encouraging capital for decades to flow to nonprofit institutions while starving companies that actually make things. And of course what we've seen is employment at these institutions has gone up. Employment at things that make places that make things has gone down as a share of employment. So this would simply be no different than any other sort of tax reform that is encouraged to let markets actually allocate capital efficiently. There would be a short term effect as employment was shifted from this sector to another sector. And in the end I think the economy will be better off.

[Scott Bertram]

Henry Olson is senior Fellow at the Ethics and Public Policy center, also on Xenryolsen Eppc, and he is the host of beyond the Polls, the podcast you can find wherever you get your audio. Henry, thanks so much for joining us today on Future of Freedom.

[Henry Olson]

Thank you for having me on.

[Scott Bertram]

Now to hear another side of the argument about taxing university endowments, which we talk with Alex Morishanu. He is senior Policy Analyst at the Tax foundation. [e-mail] Alex, thanks so much for joining us. Thank you for having me Talking today about the question about taxing university endowments. I guess from a philosophical perspective. First, Alex, if someone were to desire to tax endowments, is one reason better than the other? Meaning you say I want to tax endowments as a form of revenue generating. I want to tax endowments as a form of fairness considering other nonprofits out there, or as a form of accountability to make sure universities and colleges are adhering to laws of the land. Any of those reasons better than others to want to tax endowments?

[Alex Morishanu]

I think there are. You can talk about it in terms of negotiating on premise versus price. I think there's one sort of starting perspective you could take, which is universities are usually in the vast majority of cases, nonprofits, and the corporate income tax is a tax on profits. Nonprofits by definition do not have profits and accordingly they're an unsuitable sort of tax base. I think that that's a point often brought up in relation to, say, some more progressive types want to tax churches, but there's no sort of, not necessarily a coherent tax base to tax churches or at the very least, a lot of the data that people Cite related to taxing churches doesn't add up because it's not equivalent to profits. Just because an organization's revenues exceed its expenses doesn't make it a sort of a true, sort of profitable entity. Now, there are certainly arguments now we don't sort of fully, fully exempt the nonprofit sector from taxation because we also don't want sort of business activity to be hidden in the nonprofit sector. And so there are issues sort of across the nonprofit sector, not just in higher education, where we could try and expand the tax base by covering certain types of business like activity that is sort of hidden in a nonprofit shell and businesses that raise most of their revenue from operations, sort of service provision in competition with the private sector. Or, you know, there are issues there where it would be certainly worthwhile to expand taxation of nonprofits generally, not just in the higher education space. And then there are some debates about, you know, how college, the higher education system generally. But I think most of the time those arguments fall flat in justifying sort of the specific endowment taxes available.

[Scott Bertram]

There is discussion, and I think it's even in your [e-mail] about whether or not colleges and universities are still achieving the public good goal, meaning educating students. There's a question about whether or not colleges and universities really are more about signaling these days that you've gone and thus have this piece of paper that says, I've gone through this, even though you might not have learned something or learned enough, perhaps nonprofits are supposed to serve the public good. So if that's the case at this point, should they still be considered as such?

[Alex Morishanu]

I think the issue here is usually that when people, you know, when or well, the example of both the excise tax on endowment income that was passed in 2017, the tax cuts and Jobs act and the expansions most recently are based on endowment size. The first one was flat and applied past a certain threshold. As I recall, it was around $500,000 of endowment worth per student. And the new one has a sort of escalating, sort of progressive style structure of a tax on income of endowments based on the size of the endowment. So it's an income tax structure, but its eligibility is based on assets, which is a little confusing. But at the end of the day, the argument for taxing endowments because education is no longer providing the same value to students kind of falls flat. Because the reason why a school usually has a very large endowment is that they provide good value to their students at some degree. Where who contributes to college endowments? It's very often graduates of the school who have raised, you know, who have a lot of money that they have earned over the course of their careers and would like to give back to their alma mater. And the idea that if anything that suggests that, you know, a very large endowment reflects that a school is providing generally good value for education. So I think the specific policy argument that these endowments, these large endowments should be taxed because we're pushing too many people towards college or as opposed to other options or we've subsidized college too much. Those all may be true, but I think excise tax on, on endowment income is sort of almost a uniquely poorly targeted solution as it were to that issue.

[Scott Bertram]

I do want to ask about those colleges, universities with extremely large endowments. I wonder if we should be concerned that those endowment numbers are distorting the market in a way crowding out small colleges and some we see closing doors. There was one nearby here in Michigan recently that just announced their closing after this next school year. Is it possible these super large endowments that some colleges and universities have are sort of undermining fair competition in the college university market?

[Alex Morishanu]

Well, I think there is this sort of, sort of one sort of a little arguably too clever, arguably too clever by half I think argument to be made where endowments enable this sort of entrenching or sort of non competitiveness in terms of higher echelon universities where you have a university that's been around for a long time and has a sort of accrued very prestigious and that means that people who are really high achieving, you know, want to go there, which means that it produces higher achieving graduates and they go back and contribute to their, their alma mater and that leads to you know, a deeper financial base for them for that sort of school to continue sort of being on the cutting edge. You know, I think that's sort of a plausible argument. But at the same time I think, you know, when you talk about schools that have had to close down oftentimes that's because the sort of marginal schools that have been sort of buoyed by both generational trends and a push to subsidize, you know, higher education has, you know, the sort of turning of, the turning of a generational tide where there's lower demand for higher education. I think that's what's driving some of these school closures, not a sort of swallowing of the market by the larger ones. I think it's mostly driven by declining demand that mostly associate is related to sort of population level effects a Lot.

[Scott Bertram]

Of discussion, at least under the previous administration at this point about student loan debt forgiveness, but certainly on the larger scale too, about student loan debt default. Should colleges and universities, not taxpayers, be the ones to foot the bill when those things come up? And would an endowment tax be a way to address that issue?

[Alex Morishanu]

So I think that's exactly the issue with trying to base the tax on endowments. I mean, I'm not necessarily the, you know, I'm not as plugged in on exactly how best to handle issues related to, you know, universities, you know, degree mills that end up putting a lot of student lead, a lot of students to end up defaulting on loans, not providing value for students. But generally those, those sorts of schools that have really high rates of on completion or just end up not improving the earnings prospects of their graduates, generally those schools do not have big endowments to tap. I think the biggest issue with student loans is often when people drop out of school without finishing, not accruing the value to the degree, but still incurring a whole lot of costs. And the universities with really high endowments are not the universities that have these really high dropout rates. So again, I think there is this sort of one very clever, clever argument about how the schools with really large endowment have basically this sort of flywheel, this sort of self reinforcing cycle of being at the top. And maybe there's some argument to try and disrupt that, but that's not the argument that I've seen put forward for endowment taxes. And it also, I don't think really applies when you're worried about student debt repayment sort of defaults.

[Scott Bertram]

There is an argument that colleges and universities I've seen make against an endowment tax like this that says that endowment can't be touched. Those donations have been made for specific purposes. They have to go towards specific things. The core has to remain, the interest is spent each year. And so the idea that you can simply sell off or spin off some of that money to pay for a tax like this is not viable. Does that make sense?

[Alex Morishanu]

Well, I mean, I think we'll see how that applies to the new tax that was just passed, which comes with some higher tax rates for larger endowments by asset assets per student rather. But to my knowledge, that hasn't been unworkable. I don't think that's been unworkable with the existing endowment excise tax. I don't think the endowment excise tax doesn't raise a whole lot of revenue. But I also don't think that it has been unworkable for colleges, but that might be different with the new one with a higher rate might create more sort of difficulties of breaking up what might be sort of lumpy commitments. But to my knowledge that hasn't been a huge issue with the existing endowments tax.

[Scott Bertram]

Somewhat speculative question here as well as we see how schools adjust. But incentives drive economics, of course. If there will be a larger tax on some of these endowments, are there possibilities for colleges and universities to restructure the way that money is invested or categorized to avoid attacks like this?

[Alex Morishanu]

Certainly there will be efforts, there always are, but I'm not sure how successful. If you say you look at the tax base now, do you expect shifting of the structure of an endowment to reduce that taxable base by 50%, by 10%? Those differences in magnitude matter for trying to come to sort of coherent policy recommendations. And I don't have a strong sense either way on how big or how small those efforts to recategorize or reclassify income will be. But certainly people across, not just college endowments, but all kinds of economic activity, people try and shift the classification where possible to reduce the tax burden.

[Scott Bertram]

Alex Morishado is senior policy Analyst with the Tax Foundation. You can find [e-mail] including his piece Should We Tax University Endowments? Alex, thanks so much for joining us today on Future of Freedom.

[Alex Morishanu]

Thank you for having me.

[Scott Bertram]

We thank both of our guests for joining us. Henry Olson, senior fellow at the Ethics and Public Policy center, host of the beyond the Polls podcast and Alex Moore, Shaun who, senior policy analyst with the Tax Foundation. To find additional episodes of Future of Freedom, go to Apple Podcasts, Spotify or wherever you get your order. Audio thank you for listening to Future of Freedom, a production of Franklin News Foundation.