by Daniel L. Bennett
Inside Higher Ed has a story this morning discussing how business and college leaders collaborate on many things, but differ on tax policy. This comes as no surprise as taxes have a negative impact on profitability and the ability to expand for the former, but a positive affect on the ability to expand for the latter (public universities in particular).
Both parties obviously have an interest in state-level tax policy. Colleges make the case that they are engines of economic growth and that they provide a public service a la research and education. Businesses are undoubtedly engines of economic growth (employing a far greater share of citizens than the public sector) and providing the taxable profits and employee salaries that are needed to support the public sector, including colleges. There is an added dynamic at play in which private businesses provide the income by which parents use to pay for their children's tuition.
State budget's are struggling in the current recession and unlike the federal government, have to balance their budget every year - forcing them to make tough decisions. The two primary options to balance the budget are to reducing expenditures or to raise revenues (i.e. tax hikes). The public sector prefers to avoid the former scenario, and the current downturn has made the former option less viable, as the nationwide unemployment rate has surged to double digits (nearly 17% if you count the underemployed). Businesses have scaled way back in order to survive the crisis and need an environment that fosters economic growth before they can resume hiring. By imposing additional taxes, it further squeezes businesses and private consumers, reducing the likelihood of a quick recovery and a decline in unemployment. The private sector needs incentives to grow, not disincentives.
Increasing taxes in a recession is a zero sum game that makes to the recipients of public funds (e.g. colleges) the winners in the short run, while possibly imperiling their long-term viability, as businesses downsize or relocate to more business-friendly locales, and the public resentment of and willingness to support fiscal irresponsibility grows.
A report this week revealed that colleges continued to hire non-instructional employees during the recession, adding fuel to the fire. While many businesses and families are struggling to keep the heat on and put food on the table, colleges are taking advantage of public support to engage in rent-seeking behavior and expand their regimes, while at the same time squeezing increasing amounts from the students and their families through tuition hikes. Effectively biting the hand that feeds them. This is fiscally irresponsible, morally inappropriate, self-serving behavior that needs to come to an end.