‘Graduate tax’ could prompt brain drain, union warns

The whole idea of a graduate tax is so fraught with issues. For example what about plumbers; they earn a hefty wage throughout their lifetimes should they not also be paying a tax levy in relation to any training courses they undertake? Why should the police receive their taring free and teachers have to pay? Looking at graduates themselves - if one graduate studies say English Lit and then goes on to be poet they will probably earn next to nothing, yet someone else from the same course might go on to be an investment banker and earn a small fortune. Progressive taxation of course sorts all these problems out.

As a resident alien, I often find myself bemused watching policy proposals--like the graduate tax--in the UK. Consulting Samuelson and Nordhaus, I find one of the very basic principles of taxation is horizontal equity--those who are essentially equal should be taxed equally. People who have equal incomes should pay the same taxes.

Tax policy also affects economic efficiency and the distribution of income. Increased taxes can be used to discourage certain types of behaviour. In the case of the graduate tax, we see people with equal income paying different taxes, with the higher taxes on advanced education. Aha!--the graduate tax is designed to discourage people from getting an advanced education. Why might that be? Remember, the answer in the UK is usually the preservation of existing class relationships.

Education is the primary mechanism of social mobility. A good education means that your natural talents are maximised and that you've developed the contacts to move upwards in society independently of your social origins. So, as usual for these things in the UK, the graduate tax is a means of decreasing social mobility.

The loan system is similar, too, but not as extreme. My recommendation would be to retain it, increase the fees and loan amounts, and institute means-tested bursaries to minimize the regressiveness of the system. Education is an investment in the future and should be directed towards maximum long-term benefit.

Well he used precisely those words (graduate tax) in an interview with the Telegraph yesterday.

The Tories are going to argue that variable tuition rates would achieve the same outcome.

On what napkin did UCU develop its 'model'? As far as I can see there are currently no numbers or details in the public domain that would enable any sort of calculation. Where did the 5% figure come from? Why over 35 years?

It seems to be forgotten that the "excuse" for the graduate tax is that graduates, on average, earn (what was it?) £100,000 more than non-graduates over their careers.
Well two things spring to mind. Firstly, people who earn more already pay more tax, because that's how income tax works. And if someone is being taxed at the higher rate because they're earning more, then they will, over their career, more than pay for their eduction.
But the second point is that it isn't just graduates who benefit from their graduate status. The whole country does. Why should a nurse pay for the "privilege" of being a nurse when it's his or her patients and family who benefit? Why should a teacher pay for the "honour" of being a teacher when everyone - even people with no kids - get something back for the investment.

Education is already paid for by taxes, whether directly by the people who benefit from higher salaries, or indirectly by everyone who benefits in some way from a graduate workforce. The argument for taxing graduates directly seems to break the bond between education and the wider social good.

As Erwin puts it "Education is an investment in the future and should be directed towards maximum long-term benefit."

Long term benefit - not many companies going to pay for that.
I am sure all governments will pay for that ideal, As we all benefit we all can contribute by taxation of all. Those who earn more pay more etc.
Is there a problem?

Free university education is not coming back.

@ Jonathan Baldwin: I agree. We are already taxed according to our income; and I for one would wish that more of that tax was directed towards the maintainance of a good education system for the next generation. Everyone benefits from an educated society. Why should it be paid for by only a few?
@To Jonathan Baldwin: 'Free university education is not coming back'? It was never there in the first place, but was paid for by the taxes of the previous generation. Education should be a right, not a privilege.

Free University Education - makes a good slogan a la Free Nelson Mandela!

UCU's numbers are embarassing, particularly given the academic credentials of their membership.

They've calculated contributions on the basis of average lifetime earnings: most graduates would make their contributions within the first 25 years of their careers, thereby making their contributions lower than those anticipated by UCU.

This schoolboy error alone should be enough to send UCU back to the drawing board without serious consideration.

I've written a blog covering this - and UCU's tactical stupidity - here: http://wesstreeting.wordpress.com/2010/08/09/graduate-tax-ucu-is-barking-up-the-wrong-tree/

@Wes Streeting. Amen to your first sentence.
@Tough Call. University education should be a privilege available to only who have the academic background. The " clearing" joke will start in a few weeks time and this will run for weeks in some sink universities.

@wiserbud

How about - "Free Education - with purchase of another education of equal or less value."

Jonathan Baldwin seems to forget:

a) that the current tax basis for UK HE is profoundly regressive: less than half of the cost of providing an HE place is recovered through fees, the remainder is paid for out of general taxation. With the current social imbalance of HE (90% of middle class kids go, under 20% of working class) this means that parents without children in HE are subsidising (significantly better off) parents with children in HE. They are also paying for those better off children to have significantly enhanced life chances compared to their own.

b) It is far from clear that increased participation in HE has generally beneficial effects for the economy or society as a whole. I appreciate that view may be something of a heresy around here but the 'HE good for all' argument should certainly not be taken as a given. It IS true that better off and better developed societies tend ton have higher HE participation rates but the causal link runs the other way to that asserted by Mr Baldwin. I do not have the time or spoace to set this argument out in full but I would refer you to: 'DOES EDUCATION MATTER? myths about education and economic growth', by Alison Wolf for a discussion.

c) And, contrary to what Harry Erwin asserts, education in the UK is not the main means of social mobility, it appears to function rather as the main means of inter-generational transmission and perpetuation of social hierarchies and inequalities (while allowing some small measure of mobility - diminishing even from that small amount in the last few decades).

If HE in the UK is ever going to move away from its current state of crisis two things at least must happen: a) the middle class must be made to pay more for its privileges - either through taxation or drastically increased fees - as it has to in the US and b) those working in HE have got to move away from these profoundly mistaken myths they cling to like a comfort blanket.

If one accepts the argument that students should contribute to the cost of their education (and in so doing one accepts that this will be after the fact unless one is willing to restrict a university education to the children of the wealthy and mature students) then the only fair way to do so is by some form of progressive graduate tax. All claims about the unfairness of those who pay more than the cost of their education in these taxes must fall to the first argument - the claim is that they will benefit financially from the degree, but there are thosee who don't benefit financially. Should those who don't benefit financially pay for those who did? A recipe for all public sector graduate-only jobs to be paid the private sector rate (requiring much higher taxes for all). Should the non-graduate population be paying for the education of those who take a degree but don't benefit financially? No. Should those who don't benefit financially from their degere be required to pay financially? No. The only sensible way to fund higher education is for those who benefit financially from the degree (and there's no way to tell for whom the degree is the reason, so it should be all graduates who earn enough to pay the higher rate of tax). This should be applied to all those working in the UK who graduated from a UK HE with state support. The mess of the last thirteen years of fees needs taking into account, but the simplest way is to use a portion of the tax income to repay those loans over time. The added fairness benefit of this scheme is that it applies retroactively to all those (including all thosee MPs older than 35 who generally got a degree without fees) and which has the potential to raise far more than simply requiring fees from current students. Claims that this will drive people overseas is nonsense. it will be a small part of the UK tax burden overall and would no more drive the majority of UK graduates overseas than the current taxation systems - VAT, income tax, NI etc. If thosee who financially benefit are not to pay for the education of all, then HE should only be funded out of general taxation, not from individual payments. If one doesn't benefit financially, one should not be required to repay financially - those who don't, by and large, pay back in kind by taking on socially beneficial roles in society at far lower pay than bankers, retailer managers and MPs,

You make some good points, but miss some important points.

Are you saying that there are no benefits to education apart from financial ones? I personally feel that my education has benefitted me greatly in ways that don't increase my income, but do increase my quality of life. It would be unreasonable for me not to expect to pay something for that. I don't benefit financially from watching television, but I do derive some enjoyment from it, and I am expected to pay my licence fees. I place my education in a similar, but more valuable light, in addition to its value in increasing my income.

Secondly - should we really charge almost nothing to people who take degree courses that benefit almost no one financially really be given heavily discounted educations? In some cases - nurses and teachers, for example - maybe we should. In other cases - people who got third class degrees in media studies - that person probably wasted a lot of time of academics and support staff, and shouldn't be allowed to do that entirely on the backs of a more successful classmate in a more marketable subject. The American loan system has a bunch of jobs at which you can work in order to have your loan repayments waived (e.g. teaching shortage area subjects, or teaching in a deprived area, or active military service, plus a few others). A flat fee plus such a system might accomplish most or all of your goals without rewarding people who got nothing out of their education because they put nothing into it.

Next, how do we distribute the income? Will we tie the income to the university to the income of its graduates? If we adopt your scheme of applying a graduate tax retroactively, that would be great for the older universities, but a huge hit to the newer ones - even the best of the new ones - because they haven't had graduates for as long. And wouldn't such a scheme give universities incentives to continue to cut student numbers? That may be a good idea, but it flies in the face of government goals.

How to make the situation more equitable: you take the tax subsidy away from *places* and apply it to *people*. A significant rise in maximum fees paid by students coupled with a steep discount based on household income (parental income or own for independent students). Maintenance loans on much the same basis as now.

This might actually also be rather more effective than what's being done now in reducing the class differential in HE participation (let's face it it would be very difficult for it to be any *less* effective).

After doing further reading in the economics of education, I've learned that good public education creates a positive externality. That is, everyone benefits from a population of well-education people. Additionally, having a well-educated population raises property values. What's not to like?

Your points are all valid. On the other hand, the benefits of education apply far more to the educated individual than to his neighbors. He should pay something for that. Also, I think charging at least some fees will make students a bit more serious and focused about getting something out of their education. We lecturers need to do more to emphasize that aspect of the fees, rather than letting the consumerism mentality take over. When we look at what goes on in Continental Europe, we can see that when there are no fees, and a range of other financial benefits to being a student, it starts to become very common for people to be enrolled for 6 years or more, and often to do that without ever finishing their degrees. When the modest top-up fees we have now in the UK were introduced, some of the fluffiest courses, like media studies, saw their enrolments drop dramatically.

What I think we should really be doing is telling students that the fees are £10000 per year, or whatever they really are, and have an automatic government bursary equivalent to the sums paid into the universities now. I think the mental outlook of the students would change considerably if we did a better job emphasizing to them how little of their own costs they're paying. Right now the only number they see is the one they pay, which seems like a lot of money to people who have never worked a full time job.

Not sure these days!