December 18, 2009

Instead of fair share, tuition tax more like extortion

This op-ed was published in the Pittsburgh Business Times on December 18, 2009.

Mayor Luke Ravenstahl is asking Pittsburgh colleges to pay his government $5 million or he will pass a law to tax them more. He calls it the “Fair Share Tax,” but it’s far from fair. In fact, the word ‘extortion’ comes to mind.

The “Fair Share Tax” is a money-grab from a small group of people, many of whom don’t vote locally, to pay for the Pittsburgh government’s fiscal mismanagement.

Pittsburgh certainly has budget problems. Like many cities, it has bungled its pension system and now faces a $600 million, multi-year shortfall. An alleged solution was passed this summer, which requires the city government to deposit an extra $10 million to $14 million a year in the pension fund.

It was only after this new spending requirement that the mayor told Pittsburgh colleges of their apparent overuse of public services. A 1 percent tuition tax was proposed that just covers what is now owed annually by the city for pension funding.

The mayor argues that students receive more services from the city than they pay in local taxes.

First, let’s recognize the taxes that Pittsburgh students do pay. When students buy stuff (and they buy a lot of stuff) they pay the Allegheny County sales tax (1% rate) along with the Pennsylvania sales tax (6%). And when students buy beer (and they buy a lot of beer), they pay the county beer tax (7%) on top of the sales tax. If students work, they pay the Pittsburgh wage tax on all income-3% for residents and 1% for non-residents. Those students renting off-campus pay local property taxes in their rent price.

So what taxes are students in Pittsburgh not paying? The students themselves get no exemptions at all, but the colleges they’re attending do. Educational institutions in Pittsburgh, like most others in the country, do not pay property taxes. And local governments rely heavily on property taxes. Students benefit indirectly, probably paying somewhat lower tuition and on-campus rent. Those are the taxes students are not paying-and the “Fair Share Tax” makes no change to them.

A debate about whether the city should subsidize higher education is worth having. If the city thinks colleges are not worth giving a property tax break, then those breaks should be repealed. But city officials shouldn’t dream up a convenient tax rate to charge students and call it fair. That mentality leads to fuzzy policy justifications and a poor tax policy.

The city claims the 1 percent tuition tax would only cost students between $27 and $400, depending on the university’s tuition. But a couple hundred dollars can be a lot to a student. And the amount of the tax is almost beside the point. Students should not be singled out on false or undefined pretenses to pay for the city’s liabilities.

Of course, ending property tax breaks would also cost students. But at least the increase in taxes owed would not be conjured up to plug this year’s budget shortfall. That might be little consolation for those paying tuition, but again, this is the debate the city should be having.

State and local governments have choices to fix their budget. They ought to focus on ending tax credits and exclusions and cutting spending across the board or in targeted areas of waste.

A truly fair tax system would apply neutrally to all consumers and industries. This means that groups within the population, however able, should not be punitively targeted to raise revenue, however politically popular it is to do.

Pittsburgh college students should feel angry about the proposed tuition tax. The tax couldn’t be more arbitrary and unfair. State and local governments are struggling with budget shortfalls and will be looking for fixes-the tuition tax is an example of what not to do.

If there is anything good about this tax, it is the possibility of making university students more tax conscious. To students: get angry, make signs to picket with, and enjoy the small fights. Just wait until the federal government decides whether you are paying your “fair share” of income.

Higginbottom is a state policy analyst for the Washington, DC-based Tax Foundation, a nonpartisan, nonprofit research and educational organization that has monitored fiscal policy at the federal, state and local levels since 1937.

Was this page helpful to you?


Thank You!

The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you. Would you consider contributing to our work?

Contribute to the Tax Foundation