February 04, 2009

Hiding University Reform inside Tax Reform

After the American Century

The traditional tax problem for Danes is how to reduce the world's highest taxes while keeping the welfare state. A Tax Commission has just proposed 35 billion kroner (a bit less than 7 billion dollars) in income tax reductions, to be financed by changes in the tax structure. I want to focus on just one area, reductions in student grants, because this is far more than it appears to be, amounting to a major reversal of government policy on higher education.

The proposal is that student study grants be reduced so that they cover four years. To people outside Denmark, this still sounds wonderful. Not only do no university students pay tuition, but all students qualify for a scholarship worth about 55,000 kroner ($10,500) each year, after taxes. These grants have made it possible for children of working class parents to make their way into the professions. More than just about any other nation, Denmark has made its education system egalitarian. I have had many students who were the first in their families to attend university, and some of them have gone on to quite distinguished careers.

By comparison, in the United States taxes are considerably lower, but parents start saving early to send their children to college. It can easily cost $150,000 (c. 800,000 kroner) to send just one child to university, when tuition, room, board, transport, health insurance, computers, and books are all taken into account. The hardest economic years for American parents are those when children are in college. In contrast, Danish parents may pay huge taxes, but the year a child begins at university creates no hardship, because of the generous "SU," or student grant. In effect, Danish parents have been forced to save for their child's education, and reap the benefits if a child goes to university. But the Tax Commission in effect wants to steal the money middle-aged couples have saved through taxation for the last twenty years. They have paid in with the expectation that their children will receive student aid. But the Tax Commission will divert that money to income tax reductions, and these parents will have to pay a second time if they want their children to get an advanced education.

In theory, it takes a Dane a minimum of five years to complete a BA and MA. In practice, the average student needs six years or more. Reducing the student grant to 4 years means that it will be impossible to get an MA without taking sizable loans, which supposedly will be made available to all who apply, though one wonders if this will really be so. A great many students will likely stop after the BA degree, because they do not want to saddle themselves with large loans.

The Tax Commission surely understands that Denmark will produce fewer MA students as a result. Indeed, I assume that this is their goal, in this way forcing more people to start working full time at a younger age. When the same political coalition was in power during the 1980s and early 1990s it forced changes in Danish education with the professed goal of making the BA a terminal degree for most students. They also cheapened the BA+MA education by cutting it one full year, from six to five. The notion then was that too many people were getting advanced degrees. The then Minister of Education was Bertel Haarder, and people joked that BA stood for Bertel's Academics.

Students see the BA as a second-rate degree and most of them still want to go on for the MA. Yet that earlier reform did save money by reducing the BA+MA combination to five years. This meant that there was a full year less time to really learn a foreign language such as Russian, and it meant that students were less ready to write an MA thesis. For faculty, students losing a year of education meant a reduction of almost 20% in how many people there were to teach. For the gymnasiums, it meant that new teachers were less educated.

The Tax Commission's proposed reduction in student aid extends this earlier downsizing. Once again, the goal is to get more students to stop after their BA, and to reduce the numbers at the graduate level. Once again, the universities will have fewer to teach and suffer cutbacks in staff. The loss of entire departments may follow in some cases.

It is disingenuous to claim that the government's goal is to reform taxes. The amount spent on the extra year of SU is 750 million kroner a year, or a little more than 2% of the proposed savings on personal income taxes. The real goal is to further reduce graduate programs and eliminate some MA programs. One very real result will be a decline in the number of faculty positions, saving half a million kroner or more per eliminated position.

The Tax Commission ignores these larger consequences because they would be unacceptable to many Danes. Indeed, cutting down graduate studies is the exact opposite of the government's own professed desire to invest more in research, raise the education level, and prepare for a future where a highly-educated workforce is the key to success. But this new tax proposal will shrink the pool of highly qualified graduates, eliminate faculty positions, close some MA programs, and undermine the efforts of Danish universities to remain competitive with other nations. It will further demoralize faculties (especially in the humanities) that have been suffering cutbacks for years already. One likely result could be a brain drain, as many of the very best graduates go to work in better financed universities abroad.

As far as education is concerned, this is not a tax reform but a reversal of the government's supposed program.