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Debate: Graduate tax

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==See also== ==See also==
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* [ Student loans repaid by National Insurance Contributions] * [ Student loans repaid by National Insurance Contributions]
* [ Dedicated Taxes and User Charges] * [ Dedicated Taxes and User Charges]

Revision as of 16:55, 26 December 2009

Should Higher Education be funded by a tax on graduates?

Background and context

Well over a fifth of school-leavers in OECD countries now go on to Higher Education, a proportion that continues to rise. Outside the OECD student numbers are lower but the proportion of 19-year olds going on to university is increasing almost everywhere. Such increases are generally welcomed, both by governments and by their citizens, who hope they, or perhaps their children, will one day benefit from this expansion, but it naturally costs a great deal of money. The question of who should pay for Higher Education, and how, is relevant to every country. In some, such as France, Germany and Britain up to the early 1990s, the state pays tuition and living costs through grants to individual students, although there may be an element of means testing. In others, such as the USA, much of the cost of education is placed upon individual students, who pay for Higher Education through part-time work, parental contributions and borrowing against their future income (Britain has begun to make all students pay more towards their education, with cheap loans through a government programme). The idea of a graduate tax has been debated in many countries, but has been most notably put into effect in Australia where since the early 1990s graduates have paid an income-tax supplement related to their earnings as a means of repaying part of the cost of their university grants.[1]


Education levels and quality: Will a graduate tax increase the quality of schools as well as the enrollment rates of students?


A graduate balances both the lures of making education affordable and well funded and thus better: It is not a deterrent to the poor in the way fees and loans-based schemes are, yet it still delivers sufficient extra funds to increase the numbers in universities. Australia’s introduction of a graduate tax has been successful enough to allow university places to rise by 4% each year in the 1990s.[2]


The prospect of life-long higher-tax status will act as a deterrent to many weaker students who doubt their abilities to make a success of a university degree, or those from poorer backgrounds with no family tradition of higher education: Would the many students who fail to complete their degrees be subject to the graduate tax?The real key to improved access to higher education lies in better secondary education, as at present many potentially able students are failed by poor schools and are unable to achieve the qualifications needed to go on to university.[3]

Argument #2


This proposal would be fairer for graduates as (unlike the repayment charges on student loans) it is a progressive tax, with the level of payment linked to the income of the graduate:

By making higher education free at the point of use it also acts as a social leveller, giving no financial advantage to students whose parents could afford to pay high university fees, and requiring no means test on those whose parents are less well-off.[4]


A special tax on graduates would accelerate the brain drain abroad, as many new graduates would use their university degree (for which they have as yet paid nothing) to find jobs and a higher net income in states without the graduate tax. Is this why so many young Australians leave their native land to work elsewhere? Would this result in higher graduate taxes for those who took jobs at home?[5]

Social fairness: Would a graduate tax be fair(er) and more equitable to various members of society?


A graduate tax would be fairer for everyone in society. Graduates earn considerably more than non-graduates, and have lower rates of unemployment and greater job security - they therefore benefit hugely from higher education. Why should those without degrees (or children) themselves subsidise three years of fun for a privileged elite, especially as this elite is often more one of social class than academic potential?[6]


As higher earners, graduates already pay a lot more on average in taxes over their lifetime, while consuming less in welfare payments, thus more than repaying their “debt to society”: In addition, the whole of society gains from higher education through increased economic growth and prosperity, and from the social mobility and integration that open access to university promotes. If the cost of higher education is an investment in the country’s future, it is appropriate for the government to fund it out of general taxation. In any case, the argument that an individual doesn’t use a particular government service, so why should they pay for it, could apply elsewhere and undermine most aspects of government activity and the taxation that pays for it.[7]

State costs: Would a graduate tax be more affordable for governments, or even save the state money?


A graduate tax is the best way to increase access to higher education without massively burdening the government with an open-ended financial commitment: A graduate tax would save the state money by shifting the burden of costs to the main beneficiaries of higher education. It would also help to make the costs of expanding access to higher education more predictable and controllable, improving long-term planning. This means the early costs of setting up the system could be spread into the future by a bond issue, for example. The money saved can be spent better elsewhere in the education system, perhaps by improving secondary schooling so that more school leavers have the academic qualifications needed to attend university.[8]


A graduate tax would be a very expensive scheme to put into effect, as it would require high levels of government spending on student grants before the first graduates began to repay anything through taxation: It is likely to be two decades or more before the system begins properly to pay for itself. A costly increase in government bureaucracy would be necessitated by the need to keep track of so many graduates and by the complications the system introduces to the general taxation system.[9]

Argument #5


The alternatives to a graduate tax are worse: Full state funding encourages many without clear motivation or ability to enter university, leading to high drop out rates, while removing incentives to complete courses in a timely manner. The USA has a philanthropic culture absent in many other countries, meaning private colleges have large endowment funds offering a very large number of bursaries and scholarships to poorer students. Nonetheless, the individual states do fund universities and few students pay the full cost of their higher education. Elsewhere in the world the absence of state funding tends to limit access to university to the children of a prosperous elite. Even in the USA students from some ethnic minorities are much more reluctant to take on high levels of personal debt, and are therefore very underrepresented in higher education. The USA’s high level of personal bankruptcy is linked to the high levels of debt built up while at university.[10]


There are a number of viable alternatives to a graduate tax as a means of paying for Higher Education: Full state funding operates in many EU countries as part of an extensive and popular welfare state paid for out of general taxation; the value the state clearly places upon Higher Education has made it a common aspiration across all social classes.Most countries make individual students pay for all or most of the cost of their university education, which is widely seen as an investment in increased future earning potential. In the USA this has produced very high levels of enrolment and broad access to higher education as motivated students readily work to pay their way through college. Most also take out commercial loans, which are later paid off once the student is in employment; unlike a graduate tax these repayments are not open-ended and will one day be completed, usually before the graduate is thirty. The cost of educating a student to degree level varies widely both between and within countries, showing clear room for efficiency savings to be made in many institutions, perhaps through some focusing solely upon teaching rather than research, or by academic specialization.[11]

See also

External links and resources


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