Tuition fees: A regressive flat tax

HUGH MACKENZIE SPECIAL TO CANADIAN UNIVERSITY PRESS

TORONTO (CUP) — It’s amazing how durable an ill-founded idea can be when it appeals to the biases of the conservative policy establishment.

How else can you explain the persistence of the claim that universal funding of college and university amounts to a subsidy of the rich, paid for by the poor?

That view was one of the intellectual pillars on which Bob Rae’s high tuition fee strategy for post-secondary funding renewal in Ontario was based. It has been a consistent theme of the Millennium Scholarship Foundation. It has surfaced in Quebec as a key component of Jean Charest’s reelection campaign.

It is true that the children of higher-income families are more likely to participate in post-secondary education than the children of lower-income families. Data provided in Bob Rae’s report show that students from the highest-income 25 per cent of families made up 31 per cent of post-secondary students in Canada; students from the lowest-income 25 per cent made up 20 per cent of post-secondary students.

But you can only get from there to the conclusion that the poor are subsidizing the rich when post-secondary education is funded publicly by ignoring the tax system, implicitly assuming that the money to pay for post-secondary education is found on trees rather than raised from a real-world tax system.

Taking the revenue sources into account turns the argument upside down. Why? Because we have a tax system that is roughly proportional to income, and income is much more unevenly distributed than post-secondary education participation.

To put the data in the Rae Report into perspective, it turns out that the highest-income 25 per cent of households with children earn 47 per cent of the income, pay 47 per cent of the taxes and make up 31 per cent of the student population. The lowest-income 25 per cent of families with children earn eight per cent of the income, pay eight per cent of the taxes, and account for 21 per cent of the student population.

So as a matter of fact, funding post-secondary education from general government revenue rather than from tuition fee transfers income from higher-income families to lower-income students.

To go further, and suggest that subsidized tuition is regressive, reveals a total misunderstanding of the economic meaning of a “regressive” measure. A tax is regressive if the percentage of the payer’s income represented by the tax declines as the payer’s income increases. It is the tuition fee that is regressive, because a flat tuition fee rate makes up a lower proportion of a student’s income as her or his income increases.

So those who attack public funding of post-secondary education are flat-out wrong when they argue that such funding is a subsidy of the rich paid for by the poor, that subsidizing education is regressive or, by implication, that charging higher tuition fees is progressive

They also miss another important feature of how we pay for post-secondary education. If you look at the middle 50 per cent of families, they account for about 50 per cent of the students and would pay about 45 per cent of the taxes to support universal funding. To the extent that income matters in education funding policy, universal funding amounts to middle-income families paying for each other’s children’s education.

The policy prescription that flows from this bad math is to tax all students more — by raising tuition fees — and then provide targeted subsidies to the very poorest students. Invariably, middle-income students get nailed by the former — they pay a higher tuition tax — but don’t benefit from the latter. As a result, high tuition fees and targeted subsidies push those barriers higher up the income scale.

And in putting so much emphasis on their faux subsidy argument, the critics of universal funding for post-secondary education miss the most basic point. We don’t provide universal funding for education in order to transfer income.

We provide universal funding for education because as a society, we think it is valuable to have an educated population. We believe that education makes for more engaged, healthier and productive citizens. We believe that education underwrites the economic opportunity on which liberal democratic society is based. We believe that in a society as diverse as ours, universally accessible public education is the essential meeting place.

That doesn’t mean we should be complacent. Anything but. Only the complacent would take comfort — as the critics of universal public post-secondary education consistently do — in the fact that participation in undergraduate post-secondary education has not declined in a decade of tuition fee increases. As if “not declining” is acceptable in an economy increasingly characterized as a knowledge economy. As if “not declining” is acceptable in an economy in which the only jobs that are growing in number are jobs requiring post-secondary credentials.

We need to do a lot more to democratize participation in post-secondary education. And part of doing more is recognizing the obvious — that steadily increasing tuition fee levels create barriers to access for lower- and middle-income students and have contributed materially to the increasing levels of debt with which students now graduate.

Hugh Mackenzie is the principal in an economic consulting business based in Toronto. He has worked for over 30 years in a variety of capacities related to public policy development in the trade union movement, the private sector and all three levels of government. Mackenzie is a graduate of the University of Western Ontario and holds a master’s degree in economics (public finance) from the University of Wisconsin (Madison).