Sunday, November 15, 2009

The Next Frontier in Taxation: Taxing Students

The City of Pittsburgh is facing a taxing issue. The City’s budget is $15 million short and the Carnegie Public Library is also short of funds. The trick is to raise taxes on non-residents, who thereby do not vote.

Cities have imposed commuter taxes, hotel taxes, and rental car taxes. Pittsburgh even imposed a parking tax and proposed a “sick tax” on hospital bills in the 1970’s.

Mayor Luke Ravenstahl believes he has found the solution: a 1% tax on student’s college and university tuition bills in Pittsburgh, which he claims will raise $16 million annually. He's foaming at the mouth and fisc at the prospect of taxing 100,000 students at 7 institutions.

The students don’t vote, and the institutions can’t pack up their billion dollar plan and facilities and move to the suburbs. Seemingly, the schools and students are stuck in Pittsburgh.

The dauntless mayor is unfazed by the fact that similar taxes were rejected in Providence earlier this year, and got nowhere in Boston and Chicago.

Technically, he claims it will not be a tax on the students or their schools, but a fee levied “for the privilege of receiving a higher education in Pittsburgh.”

Semantics aside, it’s still a tax, which will be paid either directly or indirectly by the students. Ostensibly the purpose is to compensate the City for the services provided to the students, such as police and fire, and building inspections. In reality the jobs and revenues provided the City by the universities more than cover the cost to the City. Students, of course, pay large amounts of sales taxes, and contribute substantial sums to the Pittsburgh economy

The Mayor does not propose to dedicate the tax revenues to these purposes. Instead, he would pay them into the city’s pension plan and use for capital improvements. So much for polica nad fire, and building inspectors!

Imposing a tax on the universities poses a major legal problem. The City will be taxing nonprofit institutions, which are exempt from taxation. A tax on students raises issues under the Privileges and Immunities clause.

The colleges and universities have survived, indeed grown, in Pittsburgh and other cities as the traditional commercial, industrial, and retail bases have shrunk or collapsed. Thus, the Mayor wishes to tax the remaining, successful economic institutions in the city.

The idea of taxing college students represents a reversal of 350 years of American greatness.

One of the great distinguishing characteristics of America is upper mobility, made possible by universal education through high school and then our vast system of higher education.

Harvard University was founded in 1636 with a grant from the Massachusetts General Court. The University of North Carolina was founded in 1789 as the nation’s first public university. Our Founding Fathers recognized the need for colleges in the nascent nation. Ben Franklin founded the University of Pennsylvania and Thomas Jefferson the University of Virginia.
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The Universities of Georgia, Tennessee and Vermont were established in the late 1700’s. The University of Michigan was founded in 1817 by the Territory of Michigan before statehood was achieved. Other public universities were also founded before the Civil War.

Congress enacted the Morrill Act in 1862. This statute established our public land grant colleges, which joined the earlier public universities to create a system of public higher education for Americans as compared to the private universities, especially in the East, who opened their doors to the country's Protestant elite but closed the doors to Catholics, Jews, women and graduates of public high schools.

World War II witnessed the enactment of the GI Bill, which provided a free education to our Veterans, many of whom had never considered college during the Great Depression. A large wave of building community colleges and the Masters universities followed, accompanied by the expansion of the already established public universities.

Congress then enacted a series of student loan programs and the Pell Grants, as states offered similar grants as well as heavily subsidizing the public institutions to keep tuition and fees low.

The United States was making higher education available to all who wanted it at an affordable cost.

But then escalating costs of higher education coupled with state budget deficits and cuts to higher education resulted in sharp increases in tuitions and fees.

And now, Mayor Ravenstahl wishes to complete the circle by actually taxing tuition when most college students receive discounted tuition through scholarships and student loans as they struggle to pay the increasing costs of a college education, post graduate studies, and professional schools.

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