A Great Moment in Nuisance Taxes
December 2nd, 2009 - 28 Comments
“Facing big unfunded pension liabilities for city workers, Pittsburgh is proposing what appears to be a one-of-a-kind 1 percent tuition tax on local university and college students, who claim the tax is illegal and unfair,” The Wall Street Journal reports. “The tuition tax, which would raise an estimated $16 million, threatens to drive a wedge between the city and its universities, which have been credited with fueling much of Pittsburgh’s economic transformation from an industrial city to an education and medical-services center.”
Smeal’s Charles Enis argues that this is an unfair nuisance tax specifically designed to take advantage of students, who are typically underrepresented in government:
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When I first moved to Pennsylvania, I was amazed at the proliferation of nuisance taxes such as the gross receipts tax imposed on businesses here in State College. However, the 1 percent tuition tax proposed by Pittsburgh is the epitome of such taxes.
Nuisance taxes are small excise taxes on various commodities that are imposed on consumers. Many local governments, such as Pittsburgh, are cash constrained and are seeking creative ways of raising revenues. Unlike the federal government, local governments must maintain balanced budgets. Pittsburgh has proposed to single out college students to bail out their financial problems. Why this group? Could it be that those who will pay the tax are not likely to be eligible to vote against the elected officials supporting the tax? Also, the amount of the tuition tax is small enough that the transactions cost necessary to avoid the tax (i.e., transferring to a college outside of Pittsburgh) are prohibitive, hence the term “nuisance tax.”
A rationale offered by the city to justify the “Post-Secondary Education Privilege Tax” is that students consume public services. This is the same rationale that supports highway user taxes on fuel and vehicle weights. These taxes reflect the “cost occasioned” by the users of highways. I find it difficult to fathom that those students who are attending expensive schools like Carnegie Mellon, and who will pay about 12 times the taxes paid by students attending other schools, consume such a disproportional share of public services. Also, why should students paying out-of-state tuition be taxed more than in-state students attending the same institution? Other issues include the effect of the tuition tax on students receiving scholarships (e.g., R. O. T. C.), graduate assistants receiving remission of fees, and distance learners taking courses online.
Looking at the proposal, I wonder who is next? Will other communities follow Pittsburgh’s example? Also, education is a service. Will this tax open the door for the taxation of services such as haircuts? Tax increases are unpopular, especially during recessions. In my opinion, local governments in dire economic straits should evaluate increasing existing taxes to spread the burden over many taxpayers rather than to expect a single constituency to carry the weight. Furthermore, new taxes opposed to existing taxes require governments to occur greater administrative cost.