Last Friday, tvdude posted a diary entitled Bernie Sanders blows Wolf Blitzer's mind with a simple idea (guess it doesn't take much). In the diary, tvdude passed along Senator Bernie Sander's idea about a plan for "A small tax on transference of money that will in all likelihood raise about 300 billion dollars, more than enough to keep our college grads from starting out life deep in debt."
As mentioned in the interview, Sanders did introduce legislation on May 19. The bill is S. 1371 (114th Congress) entitled "A bill to impose a tax on certain trading transactions to invest in our families and communities, improve our infrastructure and our environment, strengthen our financial security, expand opportunity and reduce market volatility."
It is co-sponsored by Democratic Senator Brian Emanuel Schatz of Hawaii and has been read twice and referred to the Committee on Finance.
It's a "Robin Hood Tax" plan in that it transfers money from the wealthy to those less fortunate. In this case, it imposes a small tax on some Wall Street trading activities and uses the money to pay for desperately needed infrastructure repairs and, as tvdude mentioned, to pay for college educations for those who qualify to attend. To learn more about the Robin Hood Tax movement, visit their website.
In addition, the legislation is designed to rein in the activities of "High Frequency Traders" (HFTs), better known as day traders, whose activities, IMHO, have essentially perverted the whole idea of stock ownership and turned the market into a circus.
It's a great idea and one whose time has truly come. Who could be against that?
Some answers won't surprise you, but one might.
FAIR WARNING: LONG DIARY WITH NUMBERS!
If you're up for it, grab your beverage of choice and perhaps a snack, settle in and continue...
Of course, there those that believe this program would create a monster with dictatorial powers that would eviscerate curricula and turn schools into mouthpieces for the government, which as we know is always bad. Such an objection is voiced by Kevin James of the American Enterprise Institute in "Bernie's Bad College Idea", published in U.S. News and World Report on May 27.
Putting aside the fact the AEI is a pro-business organization that at the very least leans (tilts, bends, falls flat on its face) to the right, James' objections seem to be focused on a direct-to-schools program available only to public colleges and universities. The solution is not only simple but more practical: treat the funding as a voucher that can be used by the student to attend the institution of their choice, public or private. This would allow the student freedom of choice, it would allow for transfers and other flexibility.
This would mean that students wishing to study at a private institution would need to come up with the difference, but there would still be scholarships and other resources to help.
(Please note that the full text of S.1371 has not been published by the Library of Congress as of today, so I am not working with full knowledge of all the details of the proposed legislation. I am not sure that Mr. James had a full copy of the bill, either.)
James also objects to the cost, saying the program would cost $70 billion annually, twice the cost of Pell Grants. We won't go into the evisceration of the Pell Grant program. We also won't go into the slashing of government support at all levels for higher education.
James would probably come completely unglued if he had a better grasp of the numbers involved.
According to data from the National Center for Education Statistics and the U.S. Department of Education (adjusted for 2015 dollars), the cost of paying public college tuition and fees for all 21 million college students (13.7 million in 4-year programs; 7.3 million in 2-year programs) comes to about $146 billion per year. That would mean a 98% increase in federal spending on education, based on estimates for 2015.
Obviously, this would mean more revenue would be required or the government would have to cut estimated defense spending by 18%.
The tax Bernie Sanders is talking about is pretty much like a sales tax on certain financial market transactions. I don't know the exact rate Bernie included in his bill, but the Robin Hood Tax group calls for a rate of 0.5%, or one-tenth the average state sales tax. Given that the total value of transactions in the stock, commodity and various other financial markets numbers in the trillions of dollars annually, the idea that this tax could generate enough to pay for sending young Americans to college would seem reasonable.
For example, such a tax on the $550+ billion spent on stock buybacks by the S&P 500 in 2014 would yield $2.75 billion in taxes. That's just shy of 2% of the total needed and stock buybacks are about the least productive use of corporate funds: American companies are substituting these buybacks for investments in their companies that might produce real growth instead of an illusion. Of course, they do increase the value of executive bonuses and stock options...
But wait! That's a huge chunk of change being taxed to yield only a tiny percentage of the amount Bernie Sanders thinks the market would generate.
The truth is that in order for a financial transaction tax to generate $300 billion at a 0.5% rate, the total amount of taxable financial transactions would have to be $60 trillion. Even at the average sales tax rate of 5%, the amount of taxable transactions has to be $6 trillion annually.
Just to generate enough to pay for public college tuition, the taxable amount has to be at least $29.2 trillion. And that's if nobody comes up with schemes to legally (or not) avoid the tax.
in 2013, the Congressional Budget Office looked at the . It used a rate of 0.1% in its calculations and noted that even that rate would add a lot of incentive to structure avoidance schemes (if you want to understand their reasoning, click on the link) and shrink the market, reducing taxable transactions and yields.
The CBO's estimate of the added revenue is disappointing, to say the least. Even multiplying their estimates by five, using the Robin Hood Tax rate, yields only a fraction of the funds needed just for public college tuition and fees. For example, the CHO's estimate of 2015 revenues, adjusted for the Robin Hood Tax rate brings in $60 billion.
So how do we, as a nation, come up with the money, ideally without raising individual income tax rates?
One clue is the estimated amount of taxable cash the top companies in the S&P 500 have squirreled away offshore to avoid U.S. corporate taxes - anywhere from $1.2 trillion to $2.1 trillion, depending on who you ask. The taxes due on that would be enough to fund the free college program for nearly three years.
But let's get real: we're going to have to find another way. Or a combination of ways.
We can start by eliminating Pell Grants, as they would no longer be needed. That trims about $30 billion from the total required.
Enact and implement the 0.5% Robin Hood Tax. Even if the CBO estimates are accurate, that's at least another $60 billion.
Enact a STEM (Science, Technology, Engineering and Mathematics) tax on business. It's business that keeps whining about the need for more college graduates in these fields. This would be an opportunity to put their money where their mouths are. Of course, what they really want is for us to foot the bill while they reap the benefits but there's nothing in the rule books that it has to be that way. Benefits under this program would be limited to students enrolled in a STEM major. To encourage enrollment, benefits could be expanded, perhaps to include books. Tell businesses not to think of it as a tax, but as an investment that has a better return than stock buybacks.
The STEM program would allow other funds to be freed up for students with other majors.
Pressure states to restore higher education funding they have stripped away, allowing for lower tuition rates and reducing program costs.
The combination of these actions could prove sufficient to provide vouchers for public college or university tuition and fees to all eligible students. Or come very close.
Unfortunately, although it's obvious the need is there and the money is there, the political will to make Bernie's program a reality isn't.
Let's say Bernie's proposal began to get serious consideration. Let's even say that some daring Representative introduced similar legislation in the House (which is where financial legislation has to originate).
You would see a parade from Wall Street and the Tea Party: all the banks that get rich on student loans; Grover Norquist and his band of ninnies; the Koch Brothers and many other vested interests would descend on Washington, willing to spend enough on lobbying, junkets, wining and dining and lavishly compensated speaking engagements to ensure the bill never gets anywhere close to the House floor.
Sad. Because while Bernie Sander's exact proposal might not work, the goal is still a really, really good idea.