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Wednesday, April 15, 2009

College tuition and a new "sin tax"?

In Washington state, the legislature is considering taking a portion of the increased tuition to public schools and shifting it to the general fund of the state.

That sounds like an excise tax which is usually reserved for "sins" such as tobacco, alcohol, or gasoline. The price elasticity of demand for higher education might be slightly less than one, but it is no where near as low as for tobacco and other vices. As tuition increases people look for substitutes, both in and out of state, or choose to go into the workforce, although today's labor market might not be very vibrant.

Taxing tuition to fund some other state programs sounds like a very bad idea.

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