Are Utah's Tax and Fee Burdens Overstated?
In June, the Utah Taxpayers Association released its annual How Utah Compares study which compares tax and fee burdens in Utah to tax and fee burdens in other states as percent of personal income basis. Click here to see the report.
A summary of the report’s findings are as follows
Total taxes and fees: . . . . . . . . . . 15.32%, 4th highest in U.S.
Taxes and fees less tuition: . ... . . 13.51%, 14th highest in U.S.
Taxes and fees: . . . . . . . . . . .. .. .10.67%, 19th highest in U.S.
Should tuition be excluded altogether from tax/fee burdens?
Last week, the Utah Foundation (UF) released a report that says including tuition overstates Utah’s tax burden. UF claims that tuition should be excluded because tuition is “non-mandatory” (that is, no one is legally required to go to a public university) and because some eastern states rely on private schools.
The Utah Taxpayers Association included several measures of taxes and fees, one of which specifically excluded tuition in order to demonstrate the impact of a high college-age population on Utah's tax and fee burden (UF’s idea comes from the Utah Taxpayers Association’s June 2006 report). However, we disagree that tuition should not be considered at all.
Tuition: A non-mandatory fee?
Completely ignoring public university tuition because it is a “non-mandatory fee” has several flaws.
First, fees (including tuition) should be included in tax/fee burden calculations because there is a direct linkage between decreased reliance on taxes and increased reliance on fees. While increased reliance on user fees makes sense in certain situations, especially if user fees encourage efficient use of resources such as water and transportation, fees should be included in tax burden analyses since governments frequently increase fees in order to avoid increasing taxes.
In recent years, Utah has essentially shifted more of the cost of higher education from general taxes to user fees like tuition. Most Utahns are concerned about declining university enrollments as a percent of population, and most policy experts attribute much of this decline to increasing tuition costs. Tuition has increased for several reasons, but one major reason is that the state has made a conscious decision to rely less on general taxes and more on user fees like tuition. In FY1996, tuition accounted for 25% of higher education revenues. In FY2007, that percentage increased to 30%. While some may applaud such a shift, government is not really reducing our total burdens when shifting from general taxes to user fees like tuition.
According to UF's logic, the state could cut state/local tax burdens by reducing general taxes and increasing “voluntary” fees. Since tuition doesn’t “count” as a fee according to UF, a reduction in general taxes and a dollar-for-dollar increase in tuition would be a net tax cut according to UF.
However, tuition is not the only “voluntary” fee that most Utahns will be paying in future years. Many new highways may be tolled. Will UF also call these “voluntary” fees that should be excluded from our state/local tax and fee burden since no one will be forced to drive on a toll road?
Second, while no one is forced to attend a public university, attending a public university is the only option for most Utahns who want to attend college. This is especially true since BYU has capped enrollment and BYU draws most of its enrollment from out of state. For most Utahns, attending a public university is only voluntary for those who don’t want to attend college in the first place.
Third, most fees are voluntary to a degree. Impact fees could be argued as “non-mandatory” since people could buy an old house instead of a new house. The same could be said of gas taxes, which are really a fee, since taxpayers could significantly reduce their payment of gas taxes by driving less or by driving a fuel efficient car. Excluding "voluntary" fees is just an attempt to understate the real size of government burdens. Fees, including tuition, are real burdens and should be included.
Fourth, even if UF and others want to call fees like tuition “voluntary,” government still has a responsibility to keep fees under control.
When calculating state/local tax and fee burdens, the Utah Taxpayers Association pioneered the idea of calculating several tax burden measures. Some measures include tuition, and other measures exclude tuition. The purpose for excluding tuition in one measure was to demonstrate the impact that Utah’s unique demographics have on Utah’s state/local tax and fee burden, not to minimize the amount of taxes and fees that Utahns pay. This information is available at www.utahtaxpayers.org.
Nevertheless, despite Utah’s unique demographic challenges, tax and fee burdens should be accurately reported and not intentionally understated, and the most accurate measure is one that includes so-called “voluntary” fees.