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

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.

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.

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.

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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