Thursday, November 04, 2010
Taxing a la Carte
In a climate in which government spending is generally considered suspect, and in which people who campaign on “tax cuts good, spending bad” do very well, ballot measures that supported higher education specifically did very well.
When taxes are considered as part of a lump sum, they’re despised. But when they’re earmarked for specific purposes, they seem to be more popular. Which makes sense psychologically, since the earmark makes it easier to see the point.
Would public higher ed be better off moving from being the “balance wheel” of state budgets (hat-tip to Jane Wellman of the Delta Cost Project for the phrase) to having its own dedicated tax?
I’m wondering if a dedicated tax would be harder to cut than an appropriation in an omnibus bill. Somebody may have done some empirical research on this, but I haven’t found it.
Social Security might be a decent example. Politicians routinely run on cutting income taxes, and some of them will enact substantial cuts on social programs, given the chance. But I literally can’t remember the last time someone ran on reducing the FICA tax. (Bush II floated a variation on that in 2005; it went over like a lead balloon.) As annoying as the FICA tax is, people sort of accept it, because they understand what it’s for. An “income tax” is an undifferentiated mass, but a Social Security tax is for one specific thing.
Higher education gets nailed badly during recessions, because state income tax revenues go down and unemployment claims go up, and the difference has to be made up somewhere. Since K-12 and prisons don’t really have alternate revenue sources -- okay, some prisons do, but that’s another post -- it’s easy for legislators to look at higher ed’s tuition stream and decide that cutting college aid would do less harm than cutting other things.
But what if that option were off the table? What if, instead, higher ed had its own a la carte tax? Call it the “college and university” tax, or something catchier, but make it clear (and enforce legally) that it can only go for the public colleges and universities in a given state.
Yes, the money would fluctuate with the economy, but it would probably fluctuate less than appropriations from general budgets do now. With relative predictability, colleges could actually make (and stick to) spending plans without constantly interrupting them to make up for midyear cuts.
Admittedly, the devil can hide in the details. Property taxes are probably easier to administer than income taxes, but they’re also probably harder to sustain politically. They would also establish an expectation of being used locally, whereas income taxes are more often used at the state level. But these strike me as surmountable.
I know that different states operate differently, so some wise and worldly readers may have seen something like this done somewhere. Those who have, how well did it work? International readers -- the worldliest of the worldly -- is something like this done where you are? Does it seem to be a safer haven for higher ed, or is it just as vulnerable? Is there a catch I haven’t seen?
Something like that would be really useful, I think.
*cough* Rand Paul *cough*
(Or, to be fair, he made it clear throughout his campaign that social security had to be on the table as a place to cut, along with everything else that the government spends money on. And the people of KY really, really liked that.)
The question is, what can we tax that makes a logical connection to a college education other than a higher income? Books? Museum entrance fees? Computers? Listening to NPR?
If you can identify an appropriate target, it might work well. The downside is that everything I can come up with (like books or NPR) are things that you may not want to sanction with taxes. On the other hand, that very fact may make your idea palatable to anti-tax factions--how many Tea Party legislators are likely to be upset about a tax on NPR listeners?
But your take on this makes me wonder. You seem pretty confident that most of the people ranting about high taxes wouldn't want to defund higher ed.
When I think about the part of the tax budget I most need to see increased (NIH funding), I tend to presume that support for biomedical research is widespread enough that if it were itemized, people would be happy to pay (I did once see a survey on this and it did seem positive; but this was pre-tea partiers). Yet given how some political candidates have derided *cough*thatwhichtheydonotunderstand*cough* fruitfly research as a waste of money, I'm not so sure the public would really go for it. Certainly it would be vulnerable to politicians grandstanding, and making good things seem wasteful.
How would you feel if we itemized higher ed costs, and the public felt very strongly that that sector already wastes so much money that they should be de-funded, even to the point we'd loose all public universities?
I don't see it as a highly likely outcome, but it is possible.
Illinois has more of these special districts than any other state. One such district exists to pay for the DeKalb Municipal Band. That, too, is an item bundled on the property tax bill.
Tax Increment Financing provides another way to put an a la carte tax on property taxes.
And tourists can be justified in complaining about the different final price in different parts of the state, as counties and cities can put in their own sales tax, which includes a special tax in Chicago only on pop in a cup, the purpose being to bear the cost of emptying trash cans.
1. It would have to be the *only* tax-based source of financing. Lottery revenues have often been "earmarked" for education, which has allowed legislators to reduce funding from other sources.
2. It would have to be, on average, sufficient to provide the desired level of support.
3. It would have to be a tax that people were willing to tolerate.
I don't do public finance, but I think that it would be very dfficult to devise such a system right now.
As for the gas tax, CA has been using this money and money that was earmarked for municipalities to plug other gaping holes in it's budget - there was just a proposition to stop that from happening which shows how severe the problem was.
There's no easy answer as long as taxes are seen as evil rather than contributing to the public good.
You want to tax something that rises as the need for higher ed rises. So either a tax on something that teenagers buy/consume (I don't know, text messages?), or a tax on something that indicates a lack of and need for higher education (I suggest lottery tickets; other readers can provide their own suggestions).
It's taken a while (two decades), but this system works pretty well in providing a relatively stable funding base.
There have been problems in managing the K-12 and cc "split" of the 40%, and because this 40% is the biggest single chunk of the State budget, whenever revenues are out of whack with expenses, the most obvious and easiest place to find money is in education.
Because CA is a heavily Democratic state, and because the California Teachers Association is the most powerful union in the state, this Prop 98 funding has been protected, at least as much as is possible during a deep recession like this one.
The California State University system and the University of California haven't done nearly as well, but it's their own damn fault, in my opinion.
Back when CTA was working on drafting Prop 98, CSU and UC were invited in, but they chose not to participate. That was a bad decision, and it was probably motivated by an elitist, the-Legislature-would-never-dare-to-touch-us" attitude.
That said, from my decidedly European perspective, I am continually amazed by the fact that American higher education as a sector seems to be in such dire financial straits, as evidenced, among other things, by very high tuition costs born mostly by the students.
I hold a two-year-old Master's degree in a field closely related to clinical psychology. In the five years it took me to get that degree, I spent an estimated 6,000 euros (roughly 8,500 US dollars) a year *total*. Only about 20% of those expenses were strictly school-related (tuition and books), the rest I would have spent either way on things like rent, food and transportation. To be fair, I'm not counting the summer months (July, August and the first half of September), when I would usually live off money from a summer job. Still, the difference between this and what an American student realistically spends on a degree offering similar job opportunities in the USA seems rather staggering to me.
Obviously, Belgian higher education is heavily subsidized. In a country where *every* institution of higher education is government-subsidized (no private schools that I'm aware of), the Ministry of Education reports that it spent roughly 10,500 euros per higher ed student in the academic year 2007-2008. This means that over 85% of the true cost of higher education (not counting lost wages or the aforementioned cost of living, both of which are a factor to students worldwide) is covered by the government here. In some cases (when the student comes from a particularly low-income family), it's even more than that.
Surprisingly, though, Belgian income tax (about 30% on average, according to the federal government) is not that much higher than American income tax (about 27% on average, according to The Tax Foundation -- taxfoundation.org).
This makes me wonder if what American education really needs is for the US government to thoroughly reassess its spending priorities. I don't know if taking education money out of the 'lump sum' income tax and calling it by a different name can help with that. But if it can, as the FICA example seems to suggest, then it strikes me as something that should, and could, have been implemented years ago.
[That would be the Jack Welch of GE who claims to know how to create jobs ... by laying people off at GE.]
On your original point, I don't buy the optimism of the IHE article. Those were almost all bonds (borrowing for 30 years or so against property taxes) to build a building to house programs they can't afford to run under the current budget situation. And, although it is true that school property taxes have sometimes been raised even in bad times because schools are a Good Thing, they are not immune any more.
Make the tax an education tax and lump K-12 and higher ed together. Yes, it might lead to some nasty fights between K-12 and higher ed, BUT I think it's a lot harder for pols to argue for defunding K-12 than higher ed.
Now, that higher education funding will benefit him, but only in an indirect way that he cannot see.
Our main issue right now is that our conservative colleagues hate so many categories of Americans that they basically view themselves as a "true" America which should not be forced to be part of the fallen America we find ourselves in. That's what's behind the anti-tax insanity; they hate the idea of their tax money going to fund programs which can benefit the many Americans they hate so much.
All diverse countries face this problem, and as the US has gotten more diverse, the problem has gotten more brutal. I don't know that there are easy solutions, but I do know that we need to continue hammering on the idea that the fundamental difference between the Dems and the Repubs is that the Dems don't hate America as it currently exists.
Plus, as CCPhys. noted, most (although not all) of these referenda were for bonding for specific projects; not for the funding of day to day operations. And even then, only two out of six such referenda in my state passed in the last election, so there's no guarantee.
I'm afraid that once you've separated out higher ed funding, you've also made it a target, and if you get a few people demagoguing about overpaid professors with six-figure salaries who *don't even teach*...well, funding may become a much larger problem.
People who haven't done the job like to make fun of legislators, but there are genuine advantages to representative democracy.
In a few years when most of the baby boomers are retired, there will be fewer dollars flowing into social security than dollars needed to pay recipients. At that point the social security administration will try to collect the proceeds of those government bonds it is holding and we taxpayers will be on the hook for that money.
happy after reading your blog....
2. Here's the Wikipedia entry on the concept...tax choice
3. Here's the google friendly label..."pragmatarianism"
4. Here's a list of other pages that I've found on the subject...Choose Where Your Taxes Go.
It's one of my favorite subjects...so if you're interested...feel free to post a blog entry with any questions/concerns that you might have and I'd be more than happy to try and address them.
At the very least...it would be nice to have another option on the table.
Thanks for giving detail. I appreciate on you.
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