Thursday, June 12, 2008

Working in school and paying taxes 

Bob Collins writes an interesting commentary about a student interning at the National Republican Convention who says she is "paying her way through school" (and thus interested in candidates that support tax cuts.) Bob's questions are intriguing, so let's try to answer a few of them:
I'm generally intrigued when a young person can pay their own way through college; I have no idea how that can be done without significant help.
Bob notices that her school is a private school with tuition over $30,000. It also turns out she's a history major. Unless she is planning on a graduate or professional degree, the return-on-investment story isn't there. And it would be most likely that the student is not speaking of her current taxes; given the standard deduction and exemption, her taxes are likely to be zero. (She would pay $605 in federal income taxes if she earned $15,000 in 2007, which is probably the maximum she would earn and still a full-time student. Maybe she has investment income?)
Is there a role for the taxpayer to pay for funding higher education, depending on where you choose to attend? For example, you could if you could afford it, attend a private Catholic university for $32,656 a year and pay your own way. Admirable, indeed, but would you base a tax policy on the assumption that everyone could? Or is there a role for the taxpayer-funded public university, which is funded by taxes?
Well, before you can say this you have to get at what our student actually is paying. Only a few students pay the full tuition; there are a variety of private scholarships and grants available particularly in a private school. (And yes, I did pick that story because the university president's name was King. What about it?) Raising the sticker price of college allows for greater price discrimination and more revenues for the schools. Providing public funding contributes to higher sticker prices for college, and possibly with ill effects.
What are the limits on taxation? Basic services? Is higher education a basic service?
I can only answer the last question: no. Higher education is a middle-class transfer. Even our community colleges are full of children of middle-class families that do not need the subsidy and expand public education from the possibility of targeted assistance to college-ready students from poor families.
Does a "tax cut" per se help or hurt the person paying tuition. For example, you would have more money to pay your tuition bill, but what if more of the cost of providing that education is passed along to you?
Here's the issue I see with this question: Suppose the student's parents are in fact footing her tuition. Does this not cut into what money she would inherit later on? If you then tax her parents on the one hand and give her an option for public education with the other, is she better off? Not necessarily, particularly if the public university system created is a poor substitute for the private school she would attend without the taxes. Even more so if public education crowds out some private universities from even existing, because the non-poor have fewer funds and thus lessens demand for them. There's no easy answer to this question.

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