One of the many ways that Canada stands out as unusual in its financing of higher education is the degree to which its subsidies to students and families runs not through loans or grants but through tax relief.  Well over $2 billion/year goes out to students that way; for full-time university students in Canada last year, tax credits on average amounted to $2,200, or almost a third of the sticker price.

But given how central tax credits are to our system, what’s incredibly puzzling is that no one seems to actually understand how they work.

These are what you call “universal subsidies” – everybody gets them, regardless of need.  Right-wingers should (and often do) like this because it’s a straight voucher-like mechanism.  Left-wingers should (and often do) dislike this because, sans need assessment, they are much more likely to end up in the hands of wealthier families than poorer families.

But while it’s true that, when it comes to tax credits, the political right usually lines-up in favour, and the left usually lines up against, the fact of the matter is that the distributional impact of these grants is absolutely no different from a tuition subsidy or rebate – as the NDP have implemented both in Manitoba and Nova Scotia.  There is not one iota of difference.  And yet, left and right line-up completely differently.  What is brilliant/heresy if done through the tax system becomes a waste of money/the epitome of progressiveness if done through tuition subsidies.

(Shorter version: most partisans are stupid.)

The other objection to tax credits is that, “they don’t deliver aid when students need it”.  And while that’s a cogent critique, I’m not sure it’s as powerful as some people think.  Thirty-five percent of credits get transferred to parents, and I’d guess their need for them come tax time is probably as acute as their need for them in September.  For the 45% which get claimed by students in the year they are issued (most of whom keep the credit because they need it to offset earnings), they actually see the benefit every single time they get a paycheque, via lower tax withholdings.  Pretty useful, no?  It’s really only the 20% that carry the credit forward who might really have a serious complaint, and even they probably find the bigger tax rebates handy for repaying student loans after graduation.

The point here is not that tax credits are ideal; their goofy distributional consequences alone are enough to put them outside the pale.  But they do help reduce costs – a lot.  Tax credits mean that every time tuition goes up by a dollar, governments effectively pay for $.33 of it themselves.  We should pay more attention to them when thinking about the real costs of education.