Why free tuition is like the Bush tax cut

While doing the research for my recent posts on tuition fees, I came across something from the Canadian Federation of Students called 'Myth or Fact: A guide to common myths about the importance of reducing tuition fees' (9-page pdf). Here's an extract:

MYTH: “Tuition fee freezes unnecessarily subsidise the cost of postsecondary education for those who can afford it.”

FACT: Disgraced former Ontario Premier Bob Rae and conservative researcher Alex Usher promote this fallacy in order to popularise the notion that a “one-size-fits-all” tuition fee (also known as regulation) is obsolete. Instead, Rae and Usher champion fully deregulated tuition fees cushioned by a tuition fee waiver for a tiny sliver of the population. The argument is this:
• every student (poor, rich, or in-between) pays roughly the same tuition fee and receives equal benefit from freezes and reductions;
• low-income Canadians are under-represented in universities;
• low-income Canadians pay taxes that support public universities and colleges; therefore
• low-income families are subsidizing the participation of higher income families.
The facts do not support Rae’s and Usher’s tuition fee campaign... [E]conomist Hugh MacKenzie recently examined the issue and found no evidence that low tuition fees result in a net transfer of resources from low-income households to high-income households.

As polemics go, it's not particularly compelling: the 'myth' is ascribed to people who are described as 'disgraced' and 'conservative', and it is countered by an unsupported assertion that someone has disproved it elsewhere.

But I was curious enough to try to track it down, and I eventually came across a paper with the title "The Tuition Trap" (31-page pdf). Chart 5 from this paper presents data that are consistent with the stylised facts from this post:

University students are twice as likely to come from the top income quartile than from the lowest income quartile - which means that twice as much public money will go to tuition subsidies for students from high-income families.

Here is Hugh Mackenzie's explanation for why this is okay:

[T]he fact that young people from high-income families are overrepresented in the student population and young people from low-income families are underrepresented does not mean that subsidizing tuition from general government revenues results in poor families subsidizing rich families.

One cannot make that claim without knowing the distribution of the taxes levied to provide the subsidies.

We know from other studies that overall, provincial taxes are distributed approximately in proportion to income [see this post - ed]. This means that income groups in Ontario contribute to general revenue roughly in proportion to their share of total income...

Referring to chart 5, where an income quartile group’s share of the college and/or  university student population is greater than its share of the total income of all families with children, a tuition subsidy paid for from general government revenues amounts to a net income transfer in favour of that group. Where an income quartile group’s share of the college and/or university student population is less than its share of total income, a tuition subsidy paid for from general government revenues amounts to a net income transfer from that group to other groups.

The first and second quartile groups (incomes below $56,800) make up a larger proportion of the student population than of family income. Subsidized tuition provides a net transfer in favour of families in the lower half of the income distribution. Families in the third income quartile account for roughly the same share of students and of income. There is essentially no cross-subsidy either in favour of or against families in the third income quartile. The fourth (highest) quartile accounts for a smaller proportion of college and university students than it does of total income, so the highest-income 25 per cent of families in effect subsidizes tuition of the lowest-income half of families, through their contributions to the tax system.

Given the overall pattern, one would expect that families in the top half of the third quartile would be underrepresented among students relative to their share of income, and that families in the bottom half of the third quartile would be overrepresented among students relative to their share of income – producing a rough balance within the quartile.

This means that, to the extent that tuition does pose an economic barrier to college and university participation by people from lower-income families, substituting tuition for public funding will tend to reduce the net transfer from higher-income families to lower-income families; replacing tuition with increased public funding will tend to increase the net transfer. More than 60 per cent of families with children are net beneficiaries of the transfer inherent in subsidizing tuition from general government revenues.

The claim that subsidized tuition amounts to an unfair, regressive income transfer from poor families to middle- and upper-income families is simply not true.

My original point about the regressive nature of the tuition subsidy did not take the tax system into account: I deemed it regressive because it spent more money on students from families with high-incomes than it did on low-income students. To my mind, a progressive system would direct more money to low-income students.

The effect of bringing the tax system into the analysis is to greatly lower the progressive bar. In order for a program to conform with this new standard for progressive policies, all you have to do is make sure that the benefits are distributed in a way that is less unequal than the underlying income distribution. This is a remarkably easy test to pass - even George W. Bush's tax cuts satisfy this criterion.

Although free tuition does satisfy this incredibly weak definition of progressive, it just doesn't pass the smell test:

Low-Income Kid: "Hey, you guys from high-income families get twice as much public money as we do. Do you think that's fair?"

High-Income Kid:  "Sure it is - our parents make more than five times as much as yours do."

Comments

[dingus]

"University students are twice as likely to come from the top income quartile than from the lowest income quartile - which means that twice as much public money will go to tuition subsidies for students from high-income families."

Why is that, do you think? Likely the lion's share is simple role modelling and passing on of values. But is a perceived financial barrier a contributing factor and would lower tuition fees reduce the impact of that? At what point would the benefit of a policy with regressive characteristics be worthwhile in enhancing overall equality?

And wouldn't an overall progressive tax system undo some of the harm of an individual policy that has a regressive characteristic but achieves a goal of enhancing access to education?

I'm not sure "the policy is regressive" answers all the questions about the desirability of the policy.

[happyjuggler0]

I don't know what the distribution of quartiles attending college/university in countries where tuition is free is. This would seem to be worthwhile in order to confirm or rebut dingus' notion of a false "perceived financial barrier", especially in a country that has a good primary and secondary education system.

[Alex Usher]

Nice piece. I made a very similar point to Hugh McKenzie and his various sponsors (CFS/OCUFA) not so long ago: I pointed out that even the hated Canada Education Savings Grants were progressive by this measure. They chose not to respond, the cowards.

Dingus: you may want to look at EPI's Global Higher Education Rankings, which looks at affordability and accessibility in international context. It's not easy to do quartile-to-quartile comparisons across countries (because very few countries report things this way). Using parental education as a measure, though, most countries have roughly similar student bodies in terms of their socio-economic composition. If anything, countries with tuition fees have slightly more equal compositions because no-tuition fee countries tend to have smaller numbers, and hence low-income people get driven out on merit-rationing grounds. Also, with respect to the contribution of finaancial factors to barriers to education, read Marc Frenette's recent statscan piece on why low-income youth don't go to PSE - multinomial logit analsis suggests that financial barriers *might* account for 12% of the variation in attendance rates between high and low-income (and personally, I think that's generous considering the way the variable was constructed).

Alex

[dingus]

Thanks Alex:

I find this interesting:

"If anything, countries with tuition fees have slightly more equal compositions because no-tuition fee countries tend to have smaller numbers, and hence low-income people get driven out on merit-rationing grounds."

Fits with my comment about role models and valorising education -- that low income folks are less represented may or may not be a function of dollars and cents strictly speaking, but it may about such squirmy stuff as culture and the instilled sense of entitlement or even obligation to obtain PSE that higher income folks would have more of than low income. The dollar figure attached to education may be a symbolic barrier as much as an actual one.

The political question is how hard do you work to break down the barrier? How much do we care about issues of class and economic mobility? What are the benefits (other than the obvious pc justice values) of pushing for greater mobility?

[Stephen Gordon]

How is this different from an income-contingent repayment setup?

[Stephen Gordon]

Ah. I didn't know that the income-contigent proposals only had the effect of increasing the payment period, not of reducing the debt load itself. Not a particularly inviting situation if you're afraid of debt.

But I don't quite know what to make of the idea of education-contingent tax rates. Instead of reducing the costs of PSE, this would (in effect) reduce its benefits, making PSE a less attractive proposition. Moreover, it reduces the benefits for everyone, and not just those from upper-income families. It might be more progressive than free tuition, but I don't see how this would increase PSE attainment rates for kids from low-income families.

[Stephen Gordon]

Well, both: my other complaint about free tuition is that its effect on accessibility is vanishingly small. Funds that are now being used to subsidise tuition for high-income students would be better spent on targeted programs to encourage low-income participation.

[Stephen Gordon]

The questions of the best way to generate tax revenues and the best way to allocate PSE funding are two separate issues. Once the taxes are paid, they go into the general fund; they aren't earmarked for PSE. And once the PSE budget is set, it doesn't matter where the money had come from when deciding how it should be spent.

[Stephen Gordon]

I think I've made it pretty clear: reduce the emphasis on tuition subsidies (which largely benefit rich kids who don't need it), and redirect those funds to lower-income students for whom financial barriers are the main reason for not attending PSE.

As to the recipe for generating the necessary tax revenues, I've blogged on this several times (eg: here).

[GYEVI EKOE MICHAEL]

i love to continue my education in ur country but am single and needd sponsorship to study. please let me know the adimission date andt times.