Thursday, May 10, 2007

An Email From Mark

Mark Hammond, good luck on your exam this morning.

Mark emailed me a link to the illustrious TaxProf Blog. I thought it was really interesting. I am not sure that I will support the ideas from a policy perspective, but the way the authors phrased the question was really interesting.

They argue that income inequality that flows from higher education is a good thing. In other words, we should hope that people who go to school longer make more money because their additional income supports economic growth.

But this part fascinated me

For many, the solution to an increase in inequality is to make the tax structure more progressive—raise taxes on high-income households and reduce taxes on low-income households. While this may sound sensible, it is not. Would these same indi­viduals advocate a tax on going to college and a subsidy for dropping out of high school in response to the increased importance of education? We think not. Yet shifting the tax structure has exactly this effect.

Again, I'm not about to abondon progressivity in the tax code, but I've got to admit that there is irony here. Politically, it appears to me that the same people who support cheaper education (aimed at keeping people in school longer) also tend to argue for more progressive taxes (which could have the effect of taxing college and subsidizing dropping out).

The way that we, as a country, pay for education is more than a little messed up. When we have rampant inflation in the price of education, what do we do? We lower student loan interest rates, letting more and more dollars flow into education, which causes inflation, which makes us need to lower interest rates, which cases inflation, which makes us lower interest rates...

Thanks for the ideas, Mark. Keep 'em coming.

1 comment:

Mark said...

Yeah, I'm not really sure what to do with it either. But it did reiterate to me that unintended consequences are, if you will, omnipresent.