Elizabeth Warren’s Student Debt: Elizabeth Warren, Senator of Massachusetts and Democratic presidential nominee take charge of the heated national conversation about the cost of an out-of-control college education. She launched a $1.25 trillion plan in April 2019 that tackles increasing college expenses and the growing debt crisis for students.
Warren’s campaign estimates the cost of this plan at $1.25 trillion over 10 years. She would fund the program with a wealth tax on all families with net worths above $50 million. Is her plan realistic, could it pass and what does it mean for the state of student loan policy?
Elizabeth Warren attempts to Make student debt relief progressive instead of regressive
Warren’s plan aims for drastic relief for the borrowers with the smallest balances. This would obviously cost the least as well.
When politicians call to forgive all student loan debt, they perhaps unknowingly are supporting a regressive policy. This means most of the benefit would go disproportionately to the wealthiest borrowers.
For example, we love making New York University dentists custom plans for their student loan debt. However, forgiving the $600,000 debt of one NYU dentist could cost the same as wiping away the $10,000 debt burdens of 60 borrowers who attended a shady barber school with poor job placement rates.
Very small student loan balances have a massive impact on the poorest students. These loan burdens often come from not finishing a degree program.
The vast majority of proposals I’ve seen on student loan reform do not pick up this nuance. Clearly, Warren and her team are paying attention to the details.
Check Out How Warren’s plan has little to help borrowers with huge balances
Warren’s student loan plan would encounter fierce resistance from Republicans
I don’t think Warren’s plan has a shot at passing unless Democrats retake the Senate, keep the House and she takes the White House.
All three things would need to happen in 2020 for Warren’s student loan plan to happen. Republicans are clearly opposed to it, based on the reaction of some conservative media outlets.
If you want to sound off on your opinion in the comments about the wealth tax, I’d love to hear it. The wealth tax has been popularized by Warren, and there’s a good reason she’s proposed this instead of an income tax.
Amazon famously pays almost nothing in income taxes, and its founder, Jeff Bezos, likely liquidates very few shares, resulting in little income tax payable to the government.
Warren Buffet, another one of the wealthiest individuals in the world, uses charitable bequests and the deferral of capital gains to avoid taxes on most of his income.
Hence, Warren is going after the market value of its assets to fund progressive policies. While Congress has the power to levy an income tax thanks to the 16th Amendment, scholars disagree if a tax on wealth, while someone is still living, is constitutional or not. It would certainly face a battle, likely leading up to the Supreme Court.
Funding Warren’s student loan reform would challenge with a wealth tax
You can’t be so sure how the wealth tax would work in practice. The wealthy are notorious for their skill in hiring highly intelligent tax and legal professionals.
Many lousy, expensive financial products in existence today got their start from earlier tax regimes in the 1970s and before when the highest marginal rates were well above 60%.
Warren calls her funding plan the “Ultra-Millionaire tax.” I don’t see that plan covering the cost of free college for everyone because of the limited population it would tax as well as the likely avoidance effort that would occur.
To truly create a free college for all, some level of additional tax increases would probably be required for middle-income earners. However, a progressive tax increase could certainly pay for a sizeable chunk of Warren’s proposal.
See How Warren’s Student Loan Plan shows potential for Generous Changes in Student Loan Rules
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