Friday, June 22, 2018
Opinion

Column: Turn around tax 'race to the bottom'

States aggressively invest to persuade business firms to locate within their borders. They often offer very attractive packages that include tax breaks and publicly supported infrastructure improvements at no cost to the firm being romanced.

But even though a very important attraction for many potential employers is a workforce with a large percentage of college graduates, significant cuts to public higher education budgets are fairly common. These budget cuts have caused universities to raise tuition, which in turn has led to larger student loan balances, more time spent in low-paying jobs and reduced academic performance.

Why are states cutting their higher education expenditures? The causes are many, but a frequently overlooked reason is the interstate tax competition resulting from their economic development efforts. Businesses are attracted by spending that produces direct and immediate advantages to the firm (such as road improvements), but much less attracted by spending for public benefits that only indirectly benefit them, such as on higher education or for feeding hungry people. When firms choose to locate in lower-taxed states, support for the public sector is forced down.

Because the states are in competition with one another, it is unrealistic to expect them to meet the nation's educational goals. The incentive to cut taxes to attract businesses is at odds with the national goal of educating the next generation of our young people.

Individual state support for higher education is further diluted because many students leave the state upon graduation. This is especially likely when students major in subjects that are not needed by in-state businesses but are of great value elsewhere. For example, computer science majors often leave their home state to work in the high-tech communities of the East and West Coast.

Why should a Midwestern or Southern state invest in such education when its recipient is likely to leave? Because of this mobility, state legislators and governors perceive a greater advantage from cutting state taxes to improve the state's business climate. From the national point of view, this results in underfunding of higher education.

The federal student loan program plays a strong role in offsetting the adverse incentives facing the states. That loan program works on the demand side to enable students to shoulder more of their own educational expenses, which is consistent with taxpayers' preferences.

The loans permit students to spread the rising costs of college over many years, reducing their need to work during college when they should be investing that time in earning higher grades in more rigorous courses of study. Meanwhile, the money flow from the loans sustains our existing higher education institutions, allowing them to focus on creating a workforce for the nation, not for specific states.

Interstate tax competition promotes a "race to the bottom" in higher education, placing the United States at a serious competitive disadvantage in the global economy in which our major trading partners finance education nationally. Features of our much maligned federal student loan program — very long repayment terms, subsidized interest rates — can turn this race into a "race to the top."

William L. Holahan is emeritus professor of economics at the University of Wisconsin-Milwaukee. Charles O. Kroncke, retired dean of the College of Business at UW-M, also recently retired from USF. They are co-authors of "Economics for Voters." They wrote this exclusively for the Tampa Bay Times.

Comments

Family separation crisis is not over

The family-separation crisis that President Donald Trump created is not over. The executive order Trump signed Wednesday purporting to end the routine tearing of children from their undocumented parents stands on uncertain legal ground. U.S. border a...
Updated: 28 minutes ago
Editorial: State help needed to staff hotlines with veterans helping veterans

Editorial: State help needed to staff hotlines with veterans helping veterans

Veterans can help veterans deal with trauma resulting from military service in a way no one else can. That’s the theory behind a special hotline set up in the Tampa Bay area that proponents are hoping to take statewide.The expansion would cost some $...
Updated: 3 hours ago
Editorial: With Supreme Court ruling, Florida should collect sales tax from online retailers

Editorial: With Supreme Court ruling, Florida should collect sales tax from online retailers

It turns out the U.S. Supreme Court has a better grasp of the economic realities of the 21st century than Congress or the Florida Legislature. The court ruled Thursday that states can require online retailers to collect sales taxes even if the retail...
Updated: 8 hours ago
Editorial: Congress should ban splitting kids, parents

Editorial: Congress should ban splitting kids, parents

The shocking scenes of immigrant children crying after being taken from their parents at the border exposed a new level of cruelty by the Trump administration, and though the president reversed course Wednesday, Congress needs to end the shameful pra...
Published: 06/21/18
Sessions kickstarts action on marijuana

Sessions kickstarts action on marijuana

Good job, Jeff Sessions! It seems the attorney general’s misguided attempts to revive the unpopular and unjust federal war on marijuana may be having the exact opposite effect — prompting a new bipartisan effort in Congress to allow states to legaliz...
Published: 06/18/18
Updated: 06/21/18
Editorial: A court victory for protecting Florida’s environment

Editorial: A court victory for protecting Florida’s environment

A Tallahassee judge has affirmed the overwhelming intent of Florida voters by ruling that state lawmakers have failed to comply with a constitutional amendment that is supposed to provide a specific pot of money to buy and preserve endangered lands. ...
Published: 06/18/18
Updated: 06/20/18
Editorial: Trump should stop taking children away from parents at the border

Editorial: Trump should stop taking children away from parents at the border

Innocent children should not be used as political pawns. That is exactly what the Trump administration is doing by cruelly prying young children away from their parents as these desperate families cross the Mexican border in search of a safer, better...
Published: 06/17/18
Updated: 06/19/18

Editorial: ATF should get tougher on gun dealers who violate the law

Gun dealers who break the law by turning a blind eye to federal licensing rules are as dangerous to society as people who have no right to a possess a firearm in the first place. Yet a recent report shows that the federal agency responsible for polic...
Published: 06/17/18
Updated: 06/18/18
Editorial: Encouraging private citizens to step up on transit

Editorial: Encouraging private citizens to step up on transit

The new grass-roots effort to put a transportation package before Hillsborough County voters in November faces a tough slog. Voters rejected a similar effort in 2010, and another in 2016 by elected officials never made it from the gate. But the lates...
Published: 06/15/18
Editorial: 40 years later, honoring remarkable legacy of Nelson Poynter

Editorial: 40 years later, honoring remarkable legacy of Nelson Poynter

Forty years ago today, Nelson Poynter died. He was the last individual to own this newspaper, and to keep the Times connected to this community, he did something remarkable. He gave it away.In his last years, Mr. Poynter recognized that sooner or lat...
Published: 06/15/18