Paul L. Caron
Dean


Wednesday, February 17, 2016

Simkovic:  The Knowledge Tax

Michael Simkovic (Seton Hall), The Knowledge Tax, 82 U. Chi. L. Rev. 1981 (2015):

Government subsidies to higher education have recently become a hot-button political issue. But what if the federal government does not actually subsidize higher education, but taxes it? Labor economists struggle to explain why the rates of return to higher education have remained much higher than the rates of return to other investments. This Article proposes a novel explanation: distortionary taxation.

Economic theory suggests that when investments that are substitutes for one another are taxed inconsistently, investors shun the investment option that is taxed more heavily. Unfavorable tax treatment of higher education could therefore create an undersupply of educated labor. This distortion may reduce economic growth and social welfare.

https://taxprof.typepad.com/taxprof_blog/2016/02/simkovicthe-knowledge-tax.html

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Comments

"Labor economists struggle to explain why the rates of return to higher education have remained much higher than the rates of return to other investments."

Automation and outsourcing of the blue-collar jobs against which the returns of higher education-required white collar jobs are benchmarked. The college premium is a lot smaller when simply measured in real dollars against previous years and generations college graduates' wages, after all. The premium comes from measuring against collapsing wages among blue collar and service sector jobs.

"Unfavorable tax treatment of higher education could therefore create an undersupply of educated labor."

Yep, that well known undersupply of educated labor, which has led to... a generation of stalled real wages and a 50% underemployment rate among both four-year and law school graduates (and other groups, of course - try putting that PhD in History to work). Let's not forget that the nation with the highest percentage of college-educated people is Russia, not exactly the model of economic health or socioeconomic mobility.

Posted by: Unemployed Northeastern | Feb 17, 2016 8:14:02 AM