Graduate tax grievances


SUGGESTED ARTICLES

Tax and Fiscal Policy


A graduate tax would set a worrying precedent. The implication from Vince Cable that anything correlated with increased income should be taxed leads to absurd conclusions. What next? A tall tax? Or a man tax?



  



Actually, those seemingly silly suggestions could actually make more sense; such is the absurdity of the proposal. Someone being a man or being tall is at least a partially pre-determined, in-built bias, and it is arguably less objectionable to tax something arbitrary like that, providing that it doesn’t change behaviour, than something that makes worthwhile behaviour less attractive. Ambitious, motivated young students may decide that getting a degree is not worth the trouble if the average gains from further education are all but wiped out by the tax.



Furthermore, if the tax were to be implemented at the 5% level that the National Union of Students (NUS) has suggested to Lord Browne, this would almost certainly be too high. Most econometric studies to work out the earnings boost a degree provides are based on long term data analysis, over a period where generally only the best and brightest studied at university, a scenario that is far removed from the present reality where many objectively unsuitable candidates are given places on courses with little potential to add value. Of course it can then be argued that someone who falls into this category would only start paying the tax over the £15,000 threshold the NUS recommends, but then these higher earnings could be the result of hard graft post qualification, or additional training, not the BA in media studies obtained a decade beforehand.



Whilst the graduate-tax model may be a suitable funding mechanism for some courses at some institutions (particularly for career-oriented degrees such as Medicine and Law), the bottom line is that universities should be free to fund their courses and research in whatever way they see fit, be that through higher (or even variable) tuition fees, a percentage of future earnings, or anything else.




5 thoughts on “Graduate tax grievances”

  1. Posted 02/08/2010 at 12:23 | Permalink

    I completly agree with this: a graduate tax is an awful idea. Why not just make people pay for their degrees? Since people are usually poor before they do their degrees and richer later in life, some kind of intertemporal income transfer scheme would be needed. Luckily that’s exactly the system we have now, and nothing needs to change. Yay.

    That said, I think that universities are essentially trade unions.

  2. Posted 03/08/2010 at 13:00 | Permalink

    A tall tax?

    Greg Mankiw and Matt Weinzierl got there first: http://www.economics.harvard.edu/faculty/mankiw/files/Optimal_Taxation_of_Height.pdf

  3. Posted 03/08/2010 at 14:18 | Permalink

    A graduate tax is an absurd concept for if it is to work, people need to pay it for decades and remain within the UK tax system.

    As you say, the Universities should be free to decide how they implement their funding, a form of bond, a future levy on earnings, up front payment, bursaries, anything. If a course has little prospect of future earnings and is also not desired by benefactors or industry, it will wither on the vine. Such a system is never going to be perfect, but I am sure it will be infinitely less imperfect than what we have now and what is being proposed.

  4. Posted 04/08/2010 at 09:06 | Permalink

    Further education should be viewed as a business transaction rather than a right. Economically unviable courses should be priced out to maintain a good standard in UK universities. Fewer graduates also opens up job opportunities for non-graduates.

    A graduate tax does nothing for this and is a terrible idea. Great article. I’m sceptical about up front fees or large top up fees payed back post degree, however, as not all students finish degrees. The risk involved would deter students with poor parents.

  5. Posted 10/08/2010 at 16:32 | Permalink

    A point which I haven’t seen anybody make is that this extra tax will not bring in the fabulous sums claimed. Why should anybody pay £70k+ over their lifetime for an education costing £20k? These future high earners will almost certainly be able to borrow commercially at a rate which will be cheaper than submitting to the tax, so they’ll just pay fees upfront.

Comments are closed.


SIGN UP FOR IEA EMAILS