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Public-Serving Colleges Should Get More Federal Money

An argument for taxing rich people to send money to community colleges, comprehensive regional publics and other public-serving institutions.

January 12, 2023

Tyler Cowen drove a lot of traffic to my piece critiquing his thinking on higher education. All it took was Cowen posting a two-sentence comment on Marginal Revolution:

Joshua Kim comment on my higher education worries. I think he is saying they don’t get enough money!?

Good. Let’s get to the heart of the disagreement about the place that higher education should play in our country.

I’m arguing—and would learn from hearing the counterargument—that public-serving higher education should be treated as a public good. Postsecondary institutions whose mission and operations are optimized to educate, train and credential learners—community colleges, land-grant institutions, comprehensive regional public universities, HBCUs and other minority-serving institutions come to mind—should get more public money.

Where should that public money come from? Three words: tax the rich.

The marginal tax rate on high-income earners should go up, and some of that money should go to public-serving colleges and universities. Today, the marginal tax rate for single filers in the highest taxable income bracket ($578,126 or more) is 37 percent. That is down from 92 percent in 1952. There is plenty of room to raise taxes on the highest-income earners to free up some money to invest in public-serving higher education.

Even better, let’s adopt Senator Elizabeth Warren’s plan Ultra-Millionaire tax plan. That proposal would introduce a 2 percent tax on households on every dollar of net worth above $50 million and a 6 percent tax on every dollar of net worth above $1 billion. Wealth is so highly concentrated in the U.S. that this tax would only impact 75,000 households but produce $3.75 trillion in new revenue over a 10-year period.

A 2020 Center for American Progress report estimated that community colleges face an annual funding shortfall of $78 billion. On average, community colleges receive $8,800 less in education revenue per student than four-year institutions. The reason for this funding gap is that states provide much less money to community colleges than four-year schools and that students pay much less to attend.

As states will not or cannot raise taxes to adequately fund community colleges, the federal government could step in to make up the shortfall. These dollars could be easily generated by instituting a wealth tax on the wealthiest 0.1 percent of households. How much good could community colleges do with an extra $78 billion each year?

The trend of state-level disinvestment from higher education is well-known. A recent NEA study found that 32 states spent less on public colleges and universities in 2020 than in 2008. That public funding shortfall has primarily been made up by an increase in the amount of money that students and their families spend to pay for tuition, with the predictable result being a student debt crisis.

Let’s stop waiting for the states to restore funding for public-serving colleges and universities and instead focus on new federal dollars made available through taxes on the wealthy.

Two counterarguments (there are many more) to raising taxes on the wealthy and allocating those funds to public-serving institutions are a: higher education should be considered a private good, or b: higher taxes on the rich are always and everywhere a bad idea.

Suppose we could set aside all the arguments about the wisdom of taxing the rich. Can we at least agree that community colleges and other public-serving colleges and universities should get more money?

Can anyone make an argument as to why the top 0.1 percent of households should control almost as much wealth as the bottom 90 percent? While, at the same time, public-serving institutions like community colleges should lack the funds to provide a quality postsecondary education to anyone seeking that opportunity?

Tell me why it is a bad idea to raise taxes on rich people and send that money to our most cash-strapped but most impactful public-serving colleges and universities.

This is a straightforward argument designed to get a conversation going. Taxing the wealthy equals more money for public-serving colleges and universities.

What I want to see happen is less money for rich people and more money for community colleges, comprehensive regional publics and other schools that offer degrees for a reasonable cost to lower- and middle-income students.

How is that not a good idea? I’d like to understand.

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