Graduate Tax.
(part one)
Has its day come?
There are probably not many people who, hearing on the radio in the morning that Vince Cable is going to propose a Graduate tax, experienced nostalgia.
I have supported the idea of a Graduate Tax for years. Like all the good ideas I have had, I got this from someone else. When I was a student (at Trinity College, Dublin: 1971 -1975 or 76 -depends on definitions) one of my fellow students was Jonathan Haughton. He was studying economics. (Which I wasn't - I got to know him through student politics. I was for a while the student returning officer. This made me the resident geek who was able to count elections conducted according to the single transferable vote, and also made me a great spectator of the political process as , being the returning officer, I was barred from being a candidate in elections. Jonathan was elected President of the Students' Union in 1975 ) One of the pressing issues at the time (and is it not ever thus?) was student finance. In 1975/76 he brought forward an idea for funding students in the Republic of Ireland. He wrote a paper (I wonder does he still have a copy in his files?) in which he outlined a graduate tax scheme.
In a nutshell, the plan was that the costs of Higher Education, fees and maintenance would be paid for by an agency of the state, and that graduates would then pay a tax levy on their income for the rest of their working lives, which would go back to the state agency.
His scheme sought to solve three problems:-
1. To provide a source of funds, where no source currently existed.
The Irish Republic was a smaller, poorer economy than the UK. The only way in which the Republic could have a system as generous as the UK was to have some kind of additional levy. Increasing the level of income tax to pay for students was not an option, partly because personal tax was already very high (It was found out much later that this was partly because of a high level of tax evasion amongst the well heeled which shrank the tax base and so made matters even worse than they need be) and partly because of the social injustice involved in putting a tax burden on the low paid, when a lot of the proceeds would go to the already privileged middle class. Which brings me to 2.
2. To introduce greater fairness into the funding of Universities.
Irish Universities although charging tuition fees (In 1972 mine were 148 pounds a year, paid by the UK. ) were also subsidised by the state. So this was a subsidy you benefited from disproportionately if you got to university (And if you got to university you were probably not working class. ) and could foot the bills for fees and maintenance. I have come to think of this in shorthand as the "Covent Garden Problem". The Royal Opera House, Covent Garden, is a state subsidised Opera House. A seat there will often cost upwards of fifty pounds. To get the benefit of the subsidy one has to buy a seat....
Now of course Universities DO benefit the whole population. The easiest general benefit to demonstrate comes from medical schools.... So there is some justification for general support. On the other hand, in general, graduates do experience a higher level of income throughout their lives than they would have if they had not had a degree. Doctors a perfect example of this. So there is a "graduate premium." ( Vince Cable today said that the UK graduate premium is about 100 thousand pounds over a working life.)
3. To increase the level of resource going in to the Irish universities, which were then struggling to cope.
As they would be paid for through the graduate tax university fees could be significantly higher than their subsidised rate without causing a crisis either of affordability or social mobility.
Jonathan did try to promote the graduate tax during his year of elected student office, but got more or less nowhere. As I recall the three problems he had were:-
1. People who did not understand it, other than spotting the word tax.
2. Those who did understand it and realised the re-distributional effect and the reduction of middle class privilege implied. As it were, dearer opera tickets. So opposed it - as against their interests, narrowly conceived. When it comes to "enlightened self interest" people seem to be better on the self interest bit, and not so good on the enlightened. Those who opposed it often used a variation of the "straw man" argument. They misrepresented the proposal as something else, usually as a straight forward loan scheme, and then criticised loan schemes. When this misrepresentation was intentional, or when it was due to sloppy thinking on the part of opponents was not clear.
3. The third, and at the time, really fatal objection to the scheme arose partly out of the fact that the scheme was intended to greatly increase the expenditure on Higher Education in Ireland. This by providing maintenance grants where there were none, and also by paying higher fees so that the universities would have more money. All very well - in due course - but at the start there would have to be a big upfront payment before the graduate tax started to role in. There would have to have been a very large upfront increase in state spending on Higher Ed. This made the graduate tax look like something, which although a good idea would never actually come about as at any given time it would cost too much to start.
While I think Jonathan Haughton did manage to have a number of really interesting conversations with Irish Politicians, including to my certain knowledge Garret FitzGerald, ( http://en.wikipedia.org/wiki/Garret_FitzGerald ) he got essentially nowhere with the idea; it was the third objection that did it for it.
He finished his one year term as President of the Union, completed his degree and then went off to do a PhD at Harvard. We dropped out of touch, and I have no idea whether he remembers his scheme or whether he would still support it. Perhaps he would see it as a piece of juvenilia and not welcome my revival of his association with it. I wonder whether he will stumble across this on the Internet - no doubt, in due course this post will be picked up by google. If you want to read a bit more about graduate tax have a look at part two, above.