The Tuition Tax: An Economist's View

University of Chicago Law School Dean Saul Levmore, who is an excellent economist as well as a celebrated legal scholar, has posted a characteristically acute analysis of Pittsburgh's proposed Tuition Tax (replete with a Chicagoan's dig at Pittsburgh's population struggles). The payoff:

If the city's maneuver is a product of unusual financial stress, as appears to be the case, then the universities might do best to bargain now. In return for agreeing to make modest payments for "services" (based perhaps on a formula that took their own expenditures on police services into account, especially insofar as these provide externalities benefiting the city), they could secure long-term agreements capping the tax or the payments.

Finally, we can see the tuition tax as much more clever than a lump sum payment for services or a removal of the property tax exemption.Of these, only the tuition tax distinguishes colleges from museums and from churches. The city can be seen as arguing that it, along with many other jurisdictions, already imposes sales taxes on amusements and other things that straddle the line between services and products. A modest sales tax on tuitions - and on museum entry fees - is thus rather clever. But can taxes on temple dues and pew fees be next?

The serious point bears noting: The universities could offer the city a guaranteed revenue stream - with a discount for making it a long-term deal. The slippery slope point bears noting, too: A tax on churchgoing! That would sell here - about as well as a tax on cookie tables at weddings. Then again, Dean Levmore is known for a sharp wit; he once asked his economics students to answer the following question: "Why does a house cost more than a cookie?"