Jonathan Alter on College Aid

http://www.futureofcapitalism.com/2010/12/jonathan-alter-on-college-aid

Newsweek's Jonathan Alter tries out a column for Bloomberg News, denouncing the deal to keep tax rates unchanged as "appalling giveaways to the wealthy." He also warns:

The American Opportunity Tax Credit, for instance, is an Obama program worth as much as $2,500 a year for tuition. The compromise extends the program from the Recovery Act. If the compromise fails, millions of students won't be able to go to college.

This is ridiculous. The American Opportunity Tax Credit provides a partially refundable tax credit of up to $2,500 a year. It starts phasing out at the $160,000 level but continues up through $180,000. It was created in 2009. Under the program, families with no children and parents and children who did not go to college have their tax dollars taken by the government and used to subsidize the college-goers. Parents earning $181,000 a year have $2,500 in taxes taken from them and given to parents earning $159,000 a year — even if the assets of the $159,000 a year parent far exceed that of the $181,000 a year parents. It's not college aid, it's income redistribution. And since economic study after economic survey has shown that colleges just increase tuition by the amount of the increased government funding, the real effect is to subsidize not the college students or their parents, but the college professors (reliable Democratic voters) who earn $142,235 a year for showing up at school one day a week.

Without the American Opportunity Tax Credit, poor students and their parents would be stuck relying on private aid, on money their parents saved in tax-deferred Section 529 accounts, on Pell Grants of up to $5,550 (which went to 8.1 million students in 2009), on state colleges whose operations are subsidized by state taxpayers, and on federally subsidized student loans, the interest on which is tax deductible. If you go into "public service" — defending violent criminals counts, but not starting profitable companies that employ people — the government will forgive your student loans or limit the amount you have to repay to a percentage of your income.

Anyway, it's a huge logical leap to claim that without this single program, "millions of students won't be able to go to college." Maybe the $159,000-income family will go on a cheaper vacation for the year, or drive an older car, and still send the child to college. Maybe the colleges will lower their prices to attract some of these "millions of students." Maybe the students will think it makes sense to finance their college with loans. If the child gets into Harvard, Mr. Alter's alma mater, and the family earns less than $60,000 a year, the parents don't have to pay anything toward college. The existence of this tax credit or the lack of it will make no difference to whether students from those families will be able to go to college.

If Mr. Alter were serious about wanting to expand access to college, he'd worry less about Republican skepticism of refundable tax credits for $159,000-a-year familes, and more about the Obama administration's war on for-profit education, which threatens the technological innovation (online learning) that has the potential to make college a lot more affordable than any tax credit. Mr. Alter says extending the Bush tax cuts are "appalling giveaways to the wealthy." But at a moment when Columbia President Lee Bollinger is earning $1,753,984 a year from the university, on top of the $70,000 a year he makes as a Washington Post Company director and the $27,000 a year he makes for sitting on the board of the Kresge Foundation, you start to wonder whether "appalling giveaways to the wealthy" is a term that might apply better to the program Mr. Alter is defending than to the one he is criticizing.

by Ira Stoll  |  Dec 15, 2010 at 10:01 am Related Topics:  Compensation, Education, Taxes receive the latest by email: subscribe to the free futureofcapitalism.com mailing list