A Question of Self-Interest

"Don't Tax you. Don't Tax me. Tax that man behind the tree."

- Senator Russell Long

The interest rate on student loans will jump from its present 3.4% to 6.8%, if the present low rates are not extended for a year by the beginning of July.  Unfortunately, this one year extension, if passed will cost an estimated $5.9 billion.  Dean Zerbe, writing in Forbes, has a suggestion about how to cover this cost. Instead of a tax on S corporations that would tax small businesses, Zerbe proposes eliminating the provision in the tax code that allows college professors and administrators to receive free tuition or tuition reduction tax-free from their institutions.

Try as I might, I find that I'm unable to put self-interest aside in considering Zerbe's suggestion. Although I was a partner in an S corporation at one point in the past,  I don't foresee being in this situation again in the near future. On the other hand, I have enjoyed extremely generous tuition waivers for my children. Without those, I would have been in the interesting situation of teaching in a college where I could not afford to send my own children. In fact, my university's sticker price is high enough that I probably would not have been able to pay the taxes on a taxable tuition waiver. Yes, my children could have gone to public universities and, no, I can't think of a reason I'm more deserving of a tuition tax break than someone who works at Wal-Mart or Exxon, to use examples from the Zerbe article. On the other hand, I'm pretty sure I wouldn't have volunteered for as many committees and extra work in an institution that my own children could not attend. 

Mr. Zerbe is also a little misleading when he identifies the tax break as applying to "college professors, administrators, and college presidents." It really applies to any college employee who gets a tuition waiver, including the secretaries and maintenance workers. The article reminded me of a woman I knew who worked at my college, in a staff position. A few years ago, her daughter, then a beginning undergraduate, announced that she wanted to try another school. "I've been working here for all of these years," her mother answered, "at this low-paying, futureless job in order to get free tuition for you and now you don't want to go here? You'll go to school here and you'll finish your degree or else!"  The daughter finished her degree here. I would venture to guess that many of those on our staff are working for the tuition waiver more than the wages.  They would be even less able to pay the taxes on the benefit than I am.  It also costs the university far less to let their children occupy empty seats in the classrooms than to raise wages.

Which would be worse, placing a greater tax burden on small businesses or on college employees (more broadly defined than faculty and administrators)? If this means worse for the American economy, I'll have to put the question to an economist. If it means worse for me, the answer is pretty obvious. My own preference would be to take neither of these options and to keep college interest rates low by dramatically reducing the number available and making them contingent on academic merit and likelihood of repayment. Bringing down the number of subsidies might put us on the road to stabilizing the sky-rocketing costs of college. I'd also like to see us simplify our tax code and end the used-car sales approach to pricing real tuition rates for everyone.