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California Association of Private Postsecondary Schools

Group Floats 3 Options for Financing Public Higher Education

02/13/2013

THE CHRONICLE OF HIGHER EDUCATION. FEBRUARY 12, 2013.  A tax on financial transactions, a return to 2000-1 levels of state support, and a reallocation of existing money to offer free tuition were three ideas proposed on Tuesday in a news briefing as ways to finance America’s system of public higher education.

The Campaign for the Future of Higher Education, a two-year-old coalition of faculty groups, organized the briefing to stimulate a national conversation on using public dollars to pay for college and preserve access for the children of middle-class families. During the briefing, three scholars summarized their working papers on financing higher education and answered questions about their proposals.

“The public has demonstrated that they really care about higher education,” said Stanton A. Glantz, a professor of medicine at the University of California at San Francisco, who was among the papers’ authors. “The public has kind of voted with their pocketbooks that this is a high priority. The problem is that over the last 15 or 20 years we’ve shifted the burden of paying for education away from the society as a whole, as an investment in society’s future, and shifted it more and more to a private good where students and their families have to go hopelessly into debt to get it.”

In his paper, Rudy H. Fichtenbaum, president of the American Association of University Professors and a professor of economics at Wright State University, suggested imposing a tax on speculative financial transactions like stocks, bonds, and futures.

According to Mr. Fichtenbaum, the United States had a financial-transactions tax from 1914 to 1966, and countries including Britain, Colombia, France, and Taiwan have one now. The sheer volume of financial transactions means that a tax on them could be quite low—half a percent or less—and still generate $265-billion to $354-billion per year, he estimated. A study published by the Center for Economic and Policy Research estimated minimum potential revenue at $176.9-billion, Mr. Fichtenbaum said. That study found that a tax might reduce trading volume by as much as a quarter.

The bipartisan Joint Committee on Taxation has estimated much more conservative returns on the tax, $352-billion over 10 years, according to an article this month in The New York Times. The article, by ProPublica’s Jesse Eisinger, stated that Sen. Tom Harkin of Iowa and Rep. Peter DeFazio of Oregon, both Democrats, planned to reintroduce legislation calling for a financial-transactions tax.

Mr. Fichtenbaum noted that, in the 2012 fiscal year, the states cumulatively spent about $72.5-billion on public higher education. He proposed that $28-billion of the revenue from the proposed tax be used to cut tuition to ensure that college remains affordable for families. Next he would increase instructional spending by $47-billion to improve student advising and hire more tenure-track faculty members.

“A modest tax on financial transactions, a tax that would primarily affect wealthy speculators, many of whom have benefited from the government bailout of Wall Street banks during the Great Recession, would be an important piece of adequate funding for public higher education,” Mr. Fichtenbaum wrote in his paper.

Bob Samuels, president of the University Council-American Federation of Teachers and a lecturer at the University of California at Los Angeles, proposed making public college free by reallocating existing federal and state expenditures on higher education and doing away with regressive tax breaks.

Citing a Chronicle article, Mr. Samuels noted that the federal government spent $35-billion on Pell Grants and $104-billion on student loans in 2010. That same year the states spent $10-billion on financial aid and $80-billion on direct support of public higher education.

Mr. Samuels argued that the existing financial-aid system “drives up college costs as institutions increase tuition to chase publicly funded student-aid money and to provide set-aside moneys for their own student-aid programs.” As an alternative, he suggested eliminating the financial-aid system and directly allocating money to cover the total costs of each student. In addition, he said, eliminating student loans and their accompanying costs would save billions of dollars.

He criticized the existing system of education tax deductions and credits as “a tremendous subsidy for upper-middle-class and wealthy families” that forces lower-income students to take out hefty education loans. Direct financing of public higher education would be far more efficient, he said, citing another Chronicle article that showed that the federal government lost $40-billion in 2010 that could have gone directly to higher education.

A third paper, which looked at California as a test case, proposed hitting a “reset” button on higher-education financing to return to the levels of support that existed 12 years ago, “when higher education was more adequately funded, tuition was low, and students were able to work their way through school with little or no debt.” The report calculated the cost to either taxpayers or students of reopening California colleges and universities to students who have been excluded by recent budget cuts.

Mr. Glantz, the medical professor and vice president of UC Faculty Associations, wrote the paper with Eric Hays, executive director of the faculty group.

Restoring educational access and quality while rolling back student fees to 2000-1 levels would cost California taxpayers $6.4-billion, or about $48 apiece for the median taxpayer, the authors estimated. Without such an increase, they said, University of California students would have to pay an additional $10,491 (for a total of $23,721 per year), California State University students would pay an extra $2,470 (a total of $8,989), and community-college students’ fees would remain unchanged.