Kati Haycock: wrong on Pay It Forward, wrong for America

I don’t actually know if Kati Haycock is wrong for America, but she is definitely wrong on Pay It Forward. Pay It Forward is a plan that levies a time-limited graduate tax to fund free tuition for Oregon public schools (so like, 3 percent of graduate income for 24 years or some such). Per the usual, let’s just do the drive by of arguments that most definitely make no sense. Also per the usual, I will use as a comparator for all these arguments a hypothetical policy in which we fund higher education with General Public Taxes (as opposed to Pay It Forward taxes).

Because Pay It Forward proposes to tax graduates’ income at a certain rate every year (say 4 percent) for up to 25 years, graduates will end up paying very different amounts for their education — often more than what that education actually cost.

Because General Public Taxes to Fund Higher Education tax all income (including graduates income) at a certain rate every year, graduates will end up paying very different amounts into the higher education system — often more than what their specific education actually cost. Therefore, it would seem, tax-funded higher education is bad. It forces high-earners to help subsidize higher education more than low-earners. And that’s bad, argues Kati Haycock.

Back in reality, the fact that high-earners pay more in higher education taxes than low-earners under Pay It Forward is an advantage. It’s like 90% of the whole point of doing a Pay It Forward scheme instead of a debt scheme, i.e. that you spread out the funding of the higher education, requiring those that receive the most from it (measured by income) to pay more to keep it afloat than those that receive the least from it.

Worse, the neediest students — those currently receiving federal or state financial aid — could be hit the hardest, potentially paying thousands more over their lifetimes than they would have under the current system.

I can’t tell exactly what Haycock is doing here, but I am pretty certain she is talking about the way in which levying PIF taxes on those that still wind up in federal income-based repayment will require those specific students to pay more over the course of their lifetime than not doing so at all. I have dubbed this argument The Worst Argument So Far Against Oregon’s Higher Education Proposal. The way it works is by observing that anyone who winds up in federal income-based repayment receives absolutely no benefit from tax-funded tuition subsides. Why? Because they don’t actually pay tuition (just the federal IBR amount), but do pay the tax that helps fund tuition subsidies.

Once again, this argument would imply that General Public Taxes to fund tuition subsidies are bad things because they cost those that wind up in federal IBR more money over the course of their lifetime (they have to pay into the General Public Taxes seeing as they are a member of the General Public, but get no benefit from the tuition subsidy that those taxes go to fund). This argument is extremely silly.

Our biggest concern with Pay It Forward, though, is that it doesn’t address the root issue: rapidly escalating college costs.

If colleges are forced to run off of a set percentage of their graduates income, that is cost control. It sets a cost cap. I don’t know what she is talking about.

You know what actually doesn’t address the root issue of college institutional costs? Tuition subsidies funded by General Public Taxes. We know that because that’s the world we live in right now.

By positioning higher education less as a public good than as an individual transaction

Haycock needs to make up her mind. Either this is an individual transaction or it is a form of redistribution from the rich to the poor caused by charging a flat income rate on a large class of people called “graduates” (which is her first point above). In reality, it is closer to the latter (though I don’t care for the word “redistribution”). I don’t know how hard it is to realize that this plan treats college students, not as individuals, but as a class of people. It levies taxes to fund higher education on them as a class of people. Each pays the same rate (not individualized rates based upon expected return on investment). This is a kind of social insurance, not unlike those other stalwarts of flat-tax-funded social benefits we have: Social Security and Medicare.

The major problem with Pay It Forward is that when it hit, it got tagged as a higher education thing. And so all the organizations had their higher education people cover it. In reality, Pay It Forward is an innovative tax scheme. The people who will know how to talk about it are those who understand taxes. I don’t mean understand taxes in some broad sense, but those that actually understand theories of taxation and especially theories of tax justice. Instead, we have higher education people trying to write about a tax topic and doing so pretty clumsily.

None of this is to say there is no ground possible against Pay It Forward. There is, at the very minimum, points about administrative ease and such. But a good 70 percent of the points being made are deeply confused, and my theory as to why that is the case is because higher education people aren’t necessarily tax people, and this is a tax topic.