Taxpayer funding of higher education is a forced transfer to the relatively wealthy
Socialist author Robert Kuttner once called Proposition 13, California's 1978 property-tax-cut initiative, the revolt of the haves. The latest opposition by UC students to a 32% increase in tuition is a revolt of the "will-haves."
Milton Friedman used to remark that the California government, with its state funding of higher education, taxed the residents of Watts to pay for the residents of Beverly Hills. I think Friedman exaggerated substantially. Even though the California's tax system relies heavily on sales taxes, which probably makes the state tax system on net somewhat regressive, it's still the case that a given Beverly Hills family pays much more in taxes than a given family in Watts. But Friedman also focused on family income of the student, and that's misleading.
What Friedman could have said, and Armen Alchian did say in a classic 1968 article, is that state subsidies to higher education are a subsidy to the relatively rich.
Here are three key paragraphs from Alchian's article:
The argument that the poor can not afford to pay for a profitable college education is deceptive. What is meant by a "poor" person. Is he a college calibre student? All college calibre students are rich in both a monetary and non-monetary sense. Their inherited superior mental talent--human capital--is great wealth. For example, the college calibre student is worth on the average about $200,000, and on the average, approximately $20,000-$50,000 of that has been estimated as the enhanced value derived from college training, depending upon his major field and profession. [Remember that these are 1968 data. The CPI has increased by 521% since then.]
Failure to perceive this inherent wealth of college calibre students reflects ignorance of two economic facts. One is the enormous human wealth in our society. Every good educator recognizes that inanimate capital goods are not the only forms of wealth. The second fact is the difference between current earnings and wealth. For example, a man with a million dollars worth of growing trees, or untapped oil is a rich man--though he is not now marketing any of his wealth or services. So it is with the college calibre student. Though his current market earnings are small, his wealth--the present wealth value of his future earnings--is larger than for the average person. This is true no matter what the current earnings or wealth of his parents. It is wealth, not current earnings nor parent's wealth, that is the measure of a student's richness. College calibre students with low current earnings are not poor. Subsidized higher education, whether by zero tuition, scholarships, or zero interest loans, grants the college student a second windfall--a subsidy to exploit his initial windfall inheritance of talent. This is equivalent to subsidizing drilling costs for owners of oil-bearing lands in Texas.
There remains an even more seriously deceptive ambiguity--that between the subsidization of college education and provision of educational opportunity. Educational opportunity is provided if any person who can benefit from attending college is enabled to do so despite smallness of current earnings. Nothing in the provision of full educational opportunity implies that students who are financed during college should not later repay out of their enhanced earnings those who financed that education. Not to ask for repayment is to grant students a gift of wealth at the expense of those who do not attend college or who attend tuition colleges and pay for themselves. This is true because, for one reason, our tax bills do not distinguish between those directly benefitted by having obtained a zero tuition educational subsidy and those not so benefitted. Alumni with higher incomes pay more taxes, but they do not pay more than people with equal incomes who financed their own education or never went to college.
And then the zinger:
When some zero tuition university alumni say that without zero tuition they could not have attended college, they should have a modest concern for the implications of that statement. One poor, "uneducated" resident of Watts, upon hearing Ralph Bunche say that he could not have had a college education unless tuition were free, opined, "Perhaps it's time he repay out of his higher income for that privilege granted him by taxes on us Negroes who never went to college." That reply spots the difference between educational opportunity and a redistribution of wealth.
Alchian also points out one big benefit to students of having to pay higher tuition:
WITH FULL COST tuition, competition among California colleges, and even among academic departments would change. Instead of competition for funds being negotiated among university committees, deans, regents, state college boards, and legislators, competition would rely more on classroom behavior of instructors who would be more dependent on student attendance vis-a-vis other departments and other colleges. This would enormously enhance the power of the student in the former zero tuition colleges. Giving students more attention and influence in the university would indeed occur, exactly as the customer exercises more power at the grocery--by his purchases and choice among competing products and stores, but not by leaping over the counter and insisting on power to run the store, as occurs with current protest.