Washington Post’s Henry Olsen: tax university and foundation endowments at a much-higher rate

Apr 27, 2021


In his Washington Post column earlier today, Ethics and Public Policy Center senior fellow Henry Olsen writes that the investment income of university and foundation endowments should be taxed at a much-higher rate.


“The amount of wealth held by major colleges and large grant-making foundations is astounding,” according to Olsen, author of author of 2017’s well-timed The Working-Class Republican: Ronald Reagan and the Return of Blue-Collar Conservatism. And these “[r]ich universities and grant-making foundations pay a mere 1.4 percent in federal taxes on their net investment income, a fraction of the 23.8 percent rich people pay on their capital gains.

“There’s no reason these billionaire institutions should continue to be exempt from paying normal capital gains rates on their income if the public’s need is so great,” he continues.

Harvard may cry that paying higher taxes on the gains from its nearly $40 billion endowment would force it to crimp spending on student aid or faculty research, but wealthy individuals can make the same argument: Higher taxes would reduce the amount of money they can invest in tech start-ups or other economically productive ventures. Plus, both the wealthy institution and the rich individual have more than enough money to make do and adjust to the higher tax rates, especially if the public spending their taxes would finance is so essential.

Olsen knows “Democrats would never take up this charge, especially given how much these institutions skew to the left. … Treating institutional wealth the same as Democrats propose treating individual wealth clearly would harm their friends much more than it would harm their enemies.

“That shouldn’t matter, however,” he concludes. Whether warehoused or not, “[w]ealth is wealth, and massive accumulations of it should be taxed regardless of the source if the federal government needs the money. If Democrats won’t do that, it shows they care more about professors and foundation fat cats than they do about entrepreneurs. I doubt average Americans agree.”

1 comment

  1. I am speaking primarily about foundations. Current college donors could change their behavior and modify their gifts if they knew they could be relatively highly taxed. For foundations, this is a short-sided view that substitutes long term benefit ( asset growth and mission support) for for short term gain that would feed government growth. A high tax needed to fund the exploding mandate costs or the current proposed $ 8 trillion in new costs ( the first one at 4% speculated at the cost of supervision) would mean a slow or moderate impending death of foundations. The foundations best able to invest taking more risk to get a greater financial return and handle a complicated tax code and lower their taxes would be the largest–likely-liberal ones that have significant financial expertise.

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