The Importance of Refundability
To provide some context related to Third Way’s proposal for a college tuition tax credit it’s worth looking at Barack Obama’s proposals in this regard:
According to Obama’s Web site, the Democratic presidential candidate wants to eliminate federal subsidized private loans and instate a $4,000 student tax credit to make college more affordable to students. [...] Obama’s other solution to the college affordability issue is a $4,000 tax credit. The fully refundable credit would be available to students who complete 100 hours of community service. Castellblanch sees the tax credit as Obama picking up the students’ tab. But Kevin Carey, a policy director for Washington D.C.-based think tank Education Sector, said he’d rather see the money come in the form of a grant.
Carey said the problem with Obama’s tax credit is that the money won’t be available when tuition is due. Carey’s observation raises the question: Will students be forced to swallow tuition costs while they wait for their tax refund?
That’s an okay idea. It would help some people. Back in 2006, the DLC had a somewhat similar proposal:
To make college as universal as high school, college aid needs to be simpler and more generous. We should simplify the tax code by replacing the HOPE tax credit, the Lifetime Learning Tax Credit, and the higher education deduction with a single, refundable $3,000 college tuition tax credit to help offset undergraduate and graduate costs for all families. This new credit will cover up to 4 years of college, graduate school, and training. Net cost: $70-80 billion over 10 years.
Third Way’s new proposal, by contrast, is a repackaging of this old idea from their outfit:
Families earning up to $200,000 should receive a generous new college tuition tax cut in the form of a $5,000 credit toward the costs of college tuition, fees and books.
Compared to proposals from Obama and from the DLC, this is more generous to relatively prosperous families, but does nothing for more economically struggling families. The political rationale for the switch I understand—Third Way does more for people who are more likely to be swing voters. The policy rationale escapes me. It seems to me that the marginal dollar of tuition assistance should be directed at at poorer people rather than richer people. But that’s just my shrill left-wing blogger perspective. And the DLC’s.
UPDATE: NB, a higher ed buddy writes it to warn against conflating the student loan issue and the tax credit issue the way that first article I linked to does. These are separate proposals that don’t need to go together. The point about refundability versus non-refundability stands.
40 Responses to “The Importance of Refundability”
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January 12th, 2009 at 1:47 pm
Laughing out loud. As if families making $200,000 need help with anything.
January 12th, 2009 at 1:48 pm
Jesus Christ, when you’re to the right of the DLC. . .
January 12th, 2009 at 1:49 pm
So, one of the monkeys at the Corner actually raised a good question on this. Is there anything stopping colleges from hiking their tuitions 4,000 bucks then “refunding” 4,000 bucks worth of credit?
January 12th, 2009 at 1:49 pm
Kevin Carey’s worry is a mere logistical issue that could be solved by setting some sort of special process to pre-refund the $4,000. The government does this all the time with the Earned Income Tax Credit through the payroll withholding process whereby employers actually give the EITC workers extra money in their paycheck (in anticipation of receiving an Earned Income Tax Credit on April 15th of the following year).
January 12th, 2009 at 1:49 pm
inb4hypertimidincrimentalistbullshit.
January 12th, 2009 at 1:50 pm
Jesus, Matt: have you ever considered that the reason college is so expensive is because the federal government has thrown so much money at it and made so much cheap credit available to students? How is throwing cheap money at college through Sally Mae any more sustainable than throwing cheap money at housing through Fannie Mae?
January 12th, 2009 at 1:51 pm
So when you subsidize via grants education becomes more expensive? I guess that’s why school in Canada and Europe is so expensive!
Oh wait…
January 12th, 2009 at 1:54 pm
Carey said the problem with Obama’s tax credit is that the money won’t be available when tuition is due.
There is a similar problem going on right now with current tax incentives for children’s day care. You don’t get any money to pay for it until long after the money has been spent.
January 12th, 2009 at 1:54 pm
Here’s my proposal: the government gives extra help to people going for degrees our country actually needs. Doctors, engineers, scientists, nurses, teachers, stuff like that. Sorry MBAs.
January 12th, 2009 at 1:57 pm
$4K per year is community college/directional state university money. Those same colleges and universities are being consider for budget cuts by the state government. Putting $4K on the table will cause every directional state and community college to raise prices. It will produce few if any new college graduates.
For students at selective universities, it is almost pointless. The universities will raise the price and every is still paying the same price.
January 12th, 2009 at 2:01 pm
$200,000?!? WTF. And just to open up a can of worms, none of these subsidies should be good at private colleges. Vouchers suck for high school and they suck for college. Why should taxpayers subsidize people going to Harvard when Harvard is sitting on a mountain of cash? A tuition credit for people making $200,000 has as much to do with education as a health savings account has to do with providing healthcare for people with $200,000. It’s hard out their for all the gangstas in the 97th percentile of household income.
January 12th, 2009 at 2:03 pm
But, but, that’s Third Way’s entire purpose for existing!
January 12th, 2009 at 2:03 pm
The problem with given money to the students who then give it to the schools is that it sets up a mentality with the schools of “We don’t have to worry about raising tuition, because the students are getting all this money from the government and that will cover the increased costs.”
So the $4,000 tax credit will result in college costs going up by $4,000 in a short period of time. This is guaranteed. This has been the mentality of every Board of Regents I have ever seen.
I’m not saying it wouldn’t be nice, and it’ll work for a short period of time to help some students, but it’s never ending incrementalism, not a solution. In ten years we’ll be right back complaining about how it’s amazing that college cost increases have outstripped inflation and nobody can afford to go anymore.
January 12th, 2009 at 2:13 pm
State legislatures have been reducing taxpayer support of state universities while increasing the burden to students and their families for years. So, while tax credits and deductions and all sorts of support make for good policy discussions, they don’t address the underlying problem: that state governments don’t want to be in the business of providing college education to its citizens anymore.
January 12th, 2009 at 2:14 pm
Obviously, we should have essentially free university for those who pass merit tests for degrees, with the number of places determined by needs for the degrees, and some extra places for those willing to pay to go, and a broad system of assistance that covers most of the costs of two year community and vocational colleges.
Indeed, merit tests for places to obtain degrees of the same quality as the majority of four year degrees granted would allow the four year university to become a three year university, which would be a substantial reduction in cost of university right there (but you will not hear about that, since it means either a reduction in the number of university academics or a shared reduction in their standard of living).
The big advantage of the refundable tax credit is that it can be packaged to be paid up front by term to the school, making two year community and vocational colleges open to those who otherwise would not have access to the program.
January 12th, 2009 at 2:16 pm
The goal should be that poor people and middle class are treated the same way. The lesson we’ve learned from most of the history of the Great Society is that when you give benefits to poor people and exclude the vast majority of Americans, they grow resentful. And they vote Republican.
Hence why Roosevelt made Social Security apply to everyone without question, instead of just being a pension for poor people as what was originally demanded.
Learn from history.
January 12th, 2009 at 2:29 pm
Well, everyone who’s old. Young people didn’t turn bitter and pull the crank for the elephants.
January 12th, 2009 at 2:37 pm
Why even bother arguing with him- this is just the standard line of BS to excuse raids on the Treasury by people who don’t need the money while simultaneously stiffing those who really need help. In other words, what assclowns like Third Way are all about.
January 12th, 2009 at 3:10 pm
“higher ed buddy”
January 12th, 2009 at 3:14 pm
Any new assistance should be need-based, and should be limited to lower-tuition colleges and universities. Higher-tuition institutions are already working with a redistributionist model and don’t need additional government support. Not to mention the obvious fact that any fiscally possible new program wouldn’t provide meaningful percentage relief for students paying high tuitions–unless we continues the ridiculous practice of spending more on students at expensive schools just because they’re expensive.
January 12th, 2009 at 3:24 pm
What’s up with all the $200K haters? Give the $200K crowd a break, they’re going to need more tax credits to offset all the great ideas you all have on how to spend their money.
January 12th, 2009 at 3:25 pm
all of these figures are obscured soooo far in favor of the wealthy that its simply insane. of course, you don’t help people who are immediately short of money with a tax credit. doing so is merely another screening process designed to keep the poor out of institutions of higher learning. I don’t see why the amounts of $$ couldn’t remain the same, but those below a certain income level for their demographic have the option to receive a grant rather than a rebate. problem, pretty much, el-solvoed.
I think loans need to be re-thought as well. students who are recipients of high amounts of loans and aid are more likely to need help with job placement, and that should be part of what the high interest on student loans pays for (or the interest should be lowered significantly ((and maybe some larger employers should pay into this whole process as well, since they benefit from it exponentially more than anyone else))).
January 12th, 2009 at 3:30 pm
Somebody’s gonna need to build and staff a lot more colleges. Good luck with that.
January 12th, 2009 at 4:07 pm
There are far too many people going to college that don’t belong there, so a merit based system for admission to a four-year school makes sense. Students with sub-par records would have to prove themselves at a community college. (They’d probably receive better instruction in most cases) This way we can reduce the number of dipshits majoring in drinking at places like Ohio State and other second-tier undergrad institutions.
Outside a few fields, there’s no reason why a bachelor’s degree should routinely require 4 calendar years. Most of Oxford’s curriculum is only 3 years, so there’s no reason why it should take 4 years to get most BA’s.
The US higher education system has some strong aspects, but undergrad education isn’t really among them.
The BA has become so devalued it’s laughable, but that might be another topic.
January 12th, 2009 at 4:37 pm
“To make college as universal as high school”
While we’re at it, let’s make the NBA as universal as middle school basketball.
January 12th, 2009 at 4:53 pm
College would seem to be a bit different, because if Steve Sailer could graduate, clearly almost anybody can.
January 12th, 2009 at 5:35 pm
As always, I favor a universal education voucher that provides $x per person, per year at any income level and funds it with a flat tax (a progressive redistribution effect), and I’d make it start at birth to cover early education/child care. Why does it make sense to have different funding mechanism for every level of education?
I prefer vouchers to tax based mechanisms simply because the latter gums up our tax system needlessly. However, one wonders why there should be a form of tax credit that is not refundable. That device only functions to deny those who pay less in taxes (the poor) the benefit of the incentive.
January 12th, 2009 at 5:59 pm
This is copied from my post on another thread:
January 12th, 2009 at 7:53 pm
I’d be satisfied with a community education course in game skinning – maybe a certificate program.
Perhaps I just need a “vehicle mounted game skinning device”.
January 12th, 2009 at 8:17 pm
As the comments once again demonstrate: the education policy debate in the US is DEPRESSING.
January 12th, 2009 at 10:56 pm
Let’s stop using the term” refundable tax credits” and use the term “subsidies.” If they are “refundable,” then they are not tax credits, because you can’t get back your tax money if you didn’t pay it in the first place.
I think that we need to start demonizing “big university” the same way we demonize “big oil.” Let’s charge the colleges with rice gouging before Uncle Sam sends any more money their way.
January 12th, 2009 at 10:57 pm
That should be price gouging.
January 12th, 2009 at 10:58 pm
I congratulate Stephen Myles for how proud he is of what a little dick he sounds like. I think the sooner you get into one of the wingnut welfare programs for aspiring young douchebags, you’ll have even more to brag about.
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