Alex Usher Needs to Consider Taxation

In my previous Academic Matters blog post, I argued that there are five advantages to universal access to financial assistance for post-secondary education (as opposed to means-tested assistance for lower-income students).  They are:  1) lower administrative costs; 2) lower marginal tax rates; 3) greater transparency; 4) less opportunity for political trickery; and 5) greater social solidarity among socioeconomic groups.  My blog post was a response to Alex Usher’s blog post of May 9,  which had argued that we should target financial assistance to lower-income students (rather than provide ‘across the board’ tuition fee reductions).

Three days after my post, Mr. Usher responded with another post of his own, implicitly suggesting that we cannot afford to provide financial assistance for post-secondary education to students from all income groups; rather, we have to choose between providing assistance to lower-income students or higher-income students.

In effect, Mr. Usher is telling us he’s Robin Hood―and, being a champion of the poor, he does not support reductions in tuition fees (noting that individuals from higher-income groups have higher rates of post-secondary participation, meaning that tuition fee reductions would further advantage the ‘well to do’).  He appears to suggest that university students from middle- and higher-income groups need to ‘suck it up’ and find a way to cope with high tuition fees.

Fundamentally, there appear to be two main factors driving Mr. Usher’s argument.  First, he explicitly argues tuition-fee reductions are unfair on the grounds that they advantage higher-income households.  Second, he implicitly suggests that there isn’t enough money in the public purse to assist all household groups.  To understand why Mr. Usher is wrong on the first point (fairness) one must understand Canada’s progressive system of taxation.  And to understand why Mr. Usher is wrong on the second point (Canada’s fiscal capacity) one must understand neoliberalism (and, specifically, Canada’s trajectory on taxation over the course of the past 15 years).

Progressive Taxation

With Canada’s progressive system of taxation, higher-income households not only pay more federal taxes; they are also taxed at a higher rate on that increased income.  The same thing happens at the provincial level (with the exception of Alberta).  So when people from all income groups receive a social benefit (such as health care or K-12 education) we shouldn’t cry a river over the ‘unfairness’ of higher-income persons receiving the benefit (even in cases where individuals from higher-income groups have higher rates of use of said benefit, as is the case with post-secondary education).

What’s more, research done by Iglika Ivanova argues that this is no less true with those who hold university degrees.  In the case of British Columbia, for example, Ivanova argues that:

Over their working lives, women with an undergraduate degree contribute, on average, $106,000 more to the public treasury than women with only a high school diploma…Similarly, university-educated men contribute $159,000 more to the public treasury than men with only a high school diploma…In contrast, a four-year undergraduate degree costs $50,630, of which tuition fees make up 40 per cent (p. 4).

Neoliberalism

To put it bluntly, Mr. Usher appears to have drunk the neoliberal Kool-Aid.  To read his recent posts, one would think that Canada’s federal government has no choice but to offer means-tested financial assistance to only some students.

I beg to differ.

In 1970,  the combined federal-provincial highest personal marginal income tax rate for an Ontario taxpayer was 82%.  By 2010, it was just 46%.

Likewise, in 1979, government grants covered about 80% of a university or college’s operating budget in Canada.  Today, government grants cover only about 50% of a university or college’s operating budget (with most of the remaining amount coming from tuition fees, which have seen major increases during this same time in most Canadian jurisdictions).

How much ‘fiscal room’ would we have if we were to start reversing this trend?  Here’s what Alex Himelfarb (former Clerk of the Privy Council) said in a December 2013 interview in reference to federal taxation: “If I track the last fifteen years, all the tax cuts, federal taxes as percentage of GDP are four points lower, each point worth about $20 billion.” And in reference to more recent times, Himelfarb notes: “The two cents of GST that the Conservative government cut in its first couple of years cost about $14 billion per year…”

Put differently, any so-called “fiscal crisis” currently experienced by Canada’s federal government is both self-imposed and reversible.

(Depending on the jurisdiction, a similar argument can be made about provincial fiscal capacity.  For example, using data from Ontario’s Public Accounts, Hugh Mackenzie has argued that Ontario is currently taking in roughly $17 billion less revenue annually than it would be had it not been for the many provincial tax cuts brought in since the mid-1990s.  For an illustration, see Figure 10 in this document.)

In Sum

When it comes to financial assistance for post-secondary education, Canadians do not have to choose between helping Peter or Paul.  This approach unnecessarily pits income groups against one another.  Canadians who reap the rewards of higher education ‘pay it back’ to the public treasury after they graduate.  The more they earn, the more they ‘pay back.’

As the saying goes, it all comes out in the wash!

Postscript

1. In the ‘smoke and mirrors’ illustration I offered in my first post ―where I note that the McGuinty government ‘took back’ more from students via tuition fee hikes than it provided in new means-tested assistance ―Mr. Usher accuses me of “dubiously” using Ontario as an example.  Yet, I note that:  Academic Matters is a publication of the Ontario Confederation of University Faculty Associations; Ontario is the province in which I both live and study; and Ontario is Canada’s largest province.  With this in mind, it’s not clear to me what is dubious about using Ontario as an example.

2. In his recent post, Mr. Usher makes reference to the “National Childcare Benefit,” when I believe he meant to refer to the Universal Child Care Benefit.