Here’s a question which I think may get a little more attention over the next few years, largely because the OECD has made it one of the principal recommendations under its new Skills Strategy. Should tuition be tax deductible?

We’ve been here before, actually. Back in 1959, Diefenbaker was looking for something to counter the “national scholarships” idea being touted by Lester Pearson which was (a) less costly and (b) less irritating to Quebec. Eventually, he glommed onto a pitch of making tuition tax deductibility made by then-Tory Youth President Ted Rogers (yes, him). Needing to square it with Duplessis, he then sent an emissary – Laval law-student and then-Tory Youth Vice-President Brian Mulroney (yes, him) – to negotiate the details. And thus federal tax assistance for students was born.

One peculiarity of the system was that fact that the tuition amount was made transferable – it wasn’t just students who could claim it, but Mom and Dad as well. This introduced a serious element of regressiveness to the policy, because deductions are worth more to rich families than poor ones. This problem was solved when then-Finance Minister Michael Wilson converted a number of deductions into tax credits in his 1991 tax reform. This eliminated most of the policy’s regressiveness; the remaining bits were taken care of in 1997 when students were allowed to carry-forward any unused portions of the credit.

By and large, our current policy on tax assistance for tuition is the right one: there should be some kind of tax offset for investments in human capital, and for traditional-aged students it makes sense that the sum be a flat one rather than one which grows with parental income. But the case looks slightly different from the perspective of older learners paying to upgrade their skills. For them, a very good case can be made that their human capital investment should be treated like any other type of investment – i.e., fully tax deductible. It would significantly lower the cost of education for working people and require a lot less bureaucracy to administer than some sort of new direct loan or grant program.

So, a proposal. Let’s make tuition deductible if it is claimed by the person who actually obtains it. This would provide a benefit to older workers taking shorter-term courses without giving any new money to current students, most of whom would see no change in status because they’re in the bottom tax bracket anyway. But to avoid regressiveness, any transferred amounts would remain credits, as they currently are. And we can pay for it by clipping the education and textbook tax credits, which make less than no sense anyway.

Agree? Disagree? Let us know what you think.