A New Metaphor for Student Debt Burdens: Faculty Taxes

I like using the metaphor of indentured servitude as a way of thinking about how student debt works, an approach best argued by Jeffrey Williams at Dissent.  But I just saw another way of thinking about it – a tax on faculty.

Reihan Salam refers to an argument proposed by the sociologist Gabriel Rossman that “student loan debt can be understood as a kind of ‘unimproved land tax’ on human capital.”  Reihan refers to an unimproved land tax as a kind of tax where, “if you choose not to use your human capital to maximize your income, you will nevertheless be saddled with a non-trivial debt burden. This might incline you to gravitate towards more lucrative career options, regardless of your underlying preferences.”

I want to bring up one of my favorite economists to read, the 19th century’s very own Francis Amasa Walker (pictured above).  He was a prominent economist and the first President of the American Economics Association.  Last time we talked about Walker we pointed out how he was worried about paper money and inflation because it would undermine the power of patriarchy.  “The social effects of a paper-money inflation are so fresh in the mind…the creation of a countless host of artificial necessities in the family beyond the power of the husband and father to supply…the loss of that fit and natural leadership of taste and fashion which is the best protection society can have against sordid material aims, and manners at once gross and effeminate,” and so forth.

But he wrote about many things.  One essay he wrote, collected and available at google books in his Discussions in Economics and Statistics series, was the 1888 “The Bases of Taxation.”  What should constitute the tax base?  Walker surveys the economic debates and looks at the three leading contenders for the tax base: “(1) property or capital or realized wealth; (2) revenue or income; (3) consumption or expenditure.”

But he notes that there’s another contender: “faculty, or native or acquired power of production.”  Not what you make but how much you could make.  He believes that a faculty tax is the most equitable form of taxation, especially compared to a revenue tax.  Why is this?  A revenue tax “works injustice” because:

…between two men of equal natural powers, the revenue tax lays the heavier burden upon him who most fully and diligently uses his abilities and opportunities.  It even accepts indolence, shiftlessness, and worthlessness as a sufficient ground for excuse from public contribution.

Here are two men of equal natural powers.  One is active, energetic, industrious.  Toiling early and late, he realizes a considerable revenue….The other lets his powers run to waste; trifles with life, shirks duty; wrongs his family and the community by living squalidly and meanly.  Producing no more than is necessary to subsistence, he would, under a pure revenue tax, escape contribution altogether….His social and industrial delinquency, so far from excusing him from any portion of his obligation, would, the rather, justify heavier burdens being laid upon him, in compensation for the injury which his ill example and evil behavior have inflicted upon the community…

…to tax revenue instead of faculty is to put a premium upon self-indulgence in the form of indolence, the waste of opportunities, the abuse of natural powers; and that a faculty tax constitutes the only theoretically just form of taxation, men being required to serve the state in the degree in which they have the ability to serve themselves.

I love when economics is so squarely focused on the problem that a poor person might get away with something.  To clarify, if two people are identical, but one is a teacher and the other works for Wall Street, they should pay the same taxes – specifically the teacher should pay the high rates that the Wall Street person does.  Why? Because, the teacher is capable of making Wall Street money but chooses not to work on Wall Street, instead choosing less remunerative work.  His or her “social and industrial delinquency” (a phrase I promise to use more) is an “evil behavior” that punishes the whole of society by preventing productive work from being done, and it shouldn’t be rewarded by the tax code.

It was probably even anachronistic in the 19th century to think that taxing the ability of human capital to produce, something that would work best with something like land, was practically feasible.  It’s even harder now.  But, for a variety of reasons ranging from moral to economic efficiency, this concept holds a lot of weight for economics.

Enter student loans.  On the theory side, we know from the corporate finance theory literature that higher debt burdens for firms “incentivizes the company’s executives.  Manager must contemplate their future obligation to repay creditors on time…this threat of illiquidity has a positive disciplining effect on management.”  And on the empirical side, we know that, from Jesse Rothstein’s work, “that an extra $10,000 in student debt reduces the likelihood that an individual will take a job in nonprofits, government, or education by about 5 to 6 percentage points.”  Both effects push people to max out earnings above, like a faculty tax would.  Fascinating.

There are so many objections.  The debt doesn’t go to the right people for the disciplinary system to work.  According to the latest research, people who attend for-profit schools have significantly higher debt burdens than similar people that attend non-profit schools, but the first group have less earnings capability as a result than if they had attended non-profits.  It isn’t clear, especially given the blockbuster salaries involved with moving around rents in the financial and patent-related industries, that “maximizing salaries” is a good overall strategy for the economy.  Debt, from corporate finance theory, disciplines in part by preventing managers from taking on excessively big risks – which is often what we want our individual entrepreneurs doing.  And, of course, it reduces the value of things like “autonomy” to subordinate roles against vague references to economic keywords like “efficiency.”

But what a fascinating metaphor.  I wonder how many elites like this idea and, in quiet rooms, cheerlead the run-up in tuition as a result?

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9 Responses to A New Metaphor for Student Debt Burdens: Faculty Taxes

  1. chrismealy says:

    In optimal tax policy circles it’s sometimes called the beachcomber problem (I think from Dan Shaviro), how to keep brain surgeons from retiring early when they should be cutting heads.

  2. Richard H. Serlin says:

    Mike, excellent post. Here’s a suggestion for a future one. It’s in a comment I left on Ezra’s blog today at:


    “the top 1 percent of families saw a 278 percent increase in their real after-tax income from 1979 to 2007, while the middle 60 percent had an increase of less than 40 percent.””

    Ezra, note the, “OF FAMILIES”, not OF INDIVIDUALS.

    It’s absolutely crucial, and everyone misses it!!

    Please be the first not to.

    Look at Krugman’s graph on this today. The middle and lower quintiles OF FAMILIES, NOT INDIVIDUALS, all had modest gains from 1979 to 2007. But did they actually gain at all over an entire generation? In 1979 there were a lot less workers in the average family, with more stay-at-home moms, so did the individual average wage go up even a little? Or did it actually go down?

    These families today are making only moderately more, but they have no stay-at-home spouse to make life much easier and less stressed, to save a great deal of money on day-care, eating out, cleaning, and work expenses, like transportation. Plus, hours worked per person have increased.

    Moreover, their healthcare and education costs were much lower.

    Can somebody, maybe you or Konczal, calculate the change in non-healthcare-and-education consumption per hour worked, 1970 on? Or at least talk about this? I mean to only make modestly more, but the total workforce work hours of the family goes from 40 per week to 100 (two people at 50 each, versus only the husband at 40), and a much smaller percentage of income is left over to consume after medical and education, is this really even a gain at all over a generation, or an actual loss a whole generation later?

  3. Noni Mausa says:

    Excellent article.

    At present, quite a lot of US “faculty wealth” is sitting idle through no fault of the possessor, and in fact I don’t think there is any society where all this energy is deployed anywhere near its maximum (possibly England during WWII.) NOR SHOULD IT BE.

    To map this idea onto the human body — in times of crisis a human being can deploy strength far beyond their usual abilities, as in the classic example of a housewife rushing outside to lift a Chrysler off her teenage son when it slips off the jacks. Impressive, but this does not mean mom is fit to enter the Olympics.

    My dad was not an engineer for nothing. He taught me that you NEVER operate a device right at its maximum — you over-engineer it and so you can operate it at 60% or less of its theoretical maximum. Then if you need the extra performance, it’s there for you.

    We are a very productive society, and should, frankly, have less than 50% of adults in the paid workforce. In the 50s it was around 56% I believe, and we could easily afford a bigger dividend now. We’re operating on the redline now, time to cool off.


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  6. mark t says:

    The only “elite” that cheers the run up in tuition would be those in academia and particularly the non-teachers, who are the marginal employees funded by tuition increases. Whatever benefit – and it is a diffuse benefit to be sure – the “1%” reap from the roundabout argument that you make (high tuition -> high student loans -> forced employment in private sector) is trumped by (a) the direct pain of writing $50,000 a year in checks to send each child to college, (b) the weight you have to give student loan burdens when you think about how to compensate your employees, and ( c) all the other factors that lead one to choose to work in the private sector (I spent a brief period of my early working life working for the federal government and that was a much greater motivation for a career in the private sector than my student loans and most encounters I have had since then with civilian government services has reconfirmed that) Notwithstanding that I am probably what you have in mind by an elite, I am more than happy to not be in a quiet room and tell you that higher education is overpriced, that colleges ought to be radically reformed to be much cheaper – although the hedonic factors will sadly diminish – and alternatives, especially in the form of apprecenticeship systems, deserve to be created.

  7. That essay on the Bases of Taxation is hilarious, and more obviously so if you consider that the poor person might be doing something of enormous social benefit that just isn’t easily reduced to income bracket.

  8. denaliguide says:

    Truly amazing how many students graduate with a mortgage (debt engaged unto death) but no home………..

    Here is what can happen just 1 generation forward, or NOW


  9. ezra abrams says:

    poorly written intro
    use of word faculty highly confusing – i was thingking, tax on teachers ?
    strunk and white, get your reader out of the swamp…

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