Citizens Against Government Waste (CAGW), a nonpartisan federal budget watchdog, has awarded Elizabeth Warren its “Porker of the Month” award. Given to lawmakers and others for abusing taxpayers, the award followed the release of Warren’s popular proposal to make college more affordable. Warren calls for universal, free higher education and cancelling the debt of more than about 40 million Americans with student debt. Warren would cancel up to $50,000 in debt for borrowers with incomes under $100,000
CAGW says Warren’s proposals are poorly targeted—providing relief and subsidies to many people who don’t need them—and increase college cost inflation. CAGW cites a Federal Reserve Bank of New York report finding that each dollar of new student loans made available leads to a $0.60 increase in college costs. Thus, if college were totally free—further increasing existing federal subsidies supporting students– the bill paid by taxpayers would not only be huge but would grow.
Warren’s education proposals enjoy broad support, including among Republicans and voters without a family member in college. Most of us also consider college debt “unfair,” even though some economists suggest that borrowing money for college produces a better return than any other investment. Subsidizing college also involves those who don’t go to college subsidizing those who do.
Warren, of course, suggests that her proposals are cost-effective, making it a win for everyone. She argues, correctly, that the economy, and tax revenues, benefit from an educated workforce. She also proposes paying the $1.25 trillion 10-year cost with her “wealth tax,” a 2 percent annual tax on households with $50 million in wealth and a 3 percent tax on assets over $1 billion. Thus, most of us would pay nothing. What’s not to like? A lot.
First is the precedent of a “wealth tax.” Once the concept gets enacted into law, it will become easy to simply change the threshold. Why not put a “wealth tax” on anyone with more than $1 million in assets? Second, is the inherent evil of pandering. The heart of Warren’s appeal to get elected President isn’t that she would be an outstanding Commander-in-Chief or address climate change. It’s that she will produce lots of benefits, all effectively free, to as many people as possible. Third, Warren makes her proposals with a disregard for accuracy or truth. For example, a previous proposal to reduce the interest rate on student loans to below one percent was cited as not costing taxpayers anything—she wanted to assume the default risk on a student loan was about the same as that of a Federal Reserve Bank overnight loan to a bank, effectively zero percent. The US Department of Education says the default rate is more than 10 percent, despite generous existing loan forgiveness options for borrowers. Thus, her numbers don’t work. She also underestimated the cost of a significant expansion of subsidized child care by assuming that it would allow more people to work, some of them in an expanded child care industry, and thus would generate more taxable income which, in turn, would help pay for the proposal. Give me a break.
The list of Warren campaign promises, almost all involving new spending, is growing. These proposals may be good policy, but if the negatives of increased federal debt outweigh the benefits of the proposals, there is a problem. So far only a handful of Democrats have questioned her approach. Most, sadly, are trying to outbid her. My guess is that CAGW will have a large field to choose from as it continues to name a Porker of the Month for the next 18 months. I think it is quite possible—actually, probable—that Warren will be a repeat winner.
J.E. Dean of Oxford, writes on policy and politics based on more than 30 years working with non-profits and others interested in domestic policy. He is an advocate for the environment, civil public debate, and good government.