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Warren's plan for college debt relief troubling

Election 2020 Elizabeth Warren-2

Sen. Elizabeth Warren, D-Mass., arrives at the home of Ann Garland in Lebanon, N.H., in April.

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Tuesday, May 7, 2019

The bidding war for votes in the Democratic presidential primary escalated quickly this week with a proposal by Massachusetts Sen. Elizabeth Warren to wipe out student debt, courtesy of the taxpayers.

Warren’s proposal, put forward not in proposed legislation but in a blog post, would cancel up to $50,000 of student debt for every American with household income under $100,000. Individuals with household incomes up to $250,000 would also get debt relief, though not quite as much. She says this will benefit 95 percent of the 45 million Americans who are carrying student debt.

The proposal is estimated to cost $1.25 trillion over 10 years. Warren says the money would come from a plan she previously proposed — a tax on accumulations of wealth collecting 2 percent of $50 million or more of household net worth, and an extra 1 percent on $1 billion and up. Assuming nobody leaves the country over it, the tax would hit about 75,000 families and raise $2.75 trillion over 10 years.

Warren also wants to spend $100 billion expanding Pell grants to cover non-tuition expenses, and make public colleges tuition-free.

The wealth tax might raise more legal challenges than revenue. The Constitution prohibits any national “direct” tax not collected evenly from the states, based on population. The income tax was unconstitutional until the Constitution was amended in 1913. An additional tax on “wealth” that has already been taxed as income might run into trouble at the Supreme Court. But even without debating the legality of a wealth tax, the idea of canceling student debt by having taxpayers cover it is terrible.

Start with the problem of fundamental fairness — student debt would be canceled for all income-eligible borrowers with outstanding loans without regard to financial need, so even people who are working and able to make regular payments would get the bailout. On the other hand, people who did not take out loans they couldn’t afford to repay, and people who already repaid their loans, would be out $50,000 for making responsible financial decisions.

Then there’s the problem of moral hazard: If the taxpayers pay the debts of everyone with outstanding student loans, how will that affect the decisions made by current students thinking about their choices for financing higher education? What’s the message? Borrow as much as you can and wait for the debt to be canceled during the next presidential primary campaign?

The proposal certainly doesn’t encourage restraint in tuition increases. Universities considering whether to raise tuition could reasonably believe there’s no need to hold the line when the new policy is to step in and generously pay off old student loans with somebody else’s money.

It’s also troubling to hear a sitting United States senator so casually proposing the confiscation of some people’s property so it can be given to other people. Warren has also put forward a proposal for a “Real Corporate Tax” that would collect $1 trillion over 10 years as well as an increase in the estate tax.

Student debt weighs on millions of Americans and on the economy more broadly as people find it more difficult to obtain credit or make major purchases. Serious proposals for new repayment plans and eventual debt forgiveness deserve consideration and debate in this presidential race.

But Warren’s plan doesn’t.

The Orange County Register

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Humans of Greenville

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