A
new approach to financing higher education
By
Ronald M. Glassman and Gerald E. Scorse, guest contributors to Progressive
Charlestown
Nothing
is more central to the American Dream than equality of opportunity. In today’s
world, that usually means college or other post-secondary education—and, for
most families, the challenge of paying for it. Congress could help meet that
challenge. It could pass a financial transaction tax (FTT), and dedicate the
proceeds to providing equal opportunity for such education.
The
midterms showed a country in a sour mood. They also showed a country hungry for
a sense of purpose. In 1961, heralding a New Frontier, President Kennedy called
on the nation to send a man to the moon. In 2015, pointing to The Dream,
President Obama could call on the nation to send the sons and daughters of
working- and middle-class families to college—and do it without leaving them
deeply in debt. An FTT would provide the rocket fuel propelling America toward
that goal.
Financial
transaction taxes are small fees levied on sales of stocks, bonds, and
other commonly-traded instruments. They serve two purposes: they raise revenue
and discourage Wall Street speculation. Twenty-three countries currently levy
FTTs, and 11 member states of the European Union are closing in on a version of
their own. The U.S. is the world’s only major financial center without one.
The makings of a bipartisan education tax are in place. Higher education enjoys strong appeal across party lines, and both parties claim they’re in the corner of Main Street Americans. Instead of just talk, legislators from both parties can act. They can give Main Street kids the ticket to a better life.
Federal
Reserve chairwoman Janet L. Yellen has emphasized the link between equal
opportunity and a college education—and the strains on that link.
In October, speaking
at a conference on inequality at the Federal Reserve Bank in Boston, she
put it plainly: “It is no secret that the past few decades of widening
inequality can be summed up as significant income and wealth gains for those at
the very top and stagnant living standards for the majority. I think it is
appropriate to ask whether this trend is compatible with values rooted in our
nation’s history, among them the high value Americans have traditionally placed
on equality of opportunity.”
Study
after study has confirmed the payoff from a college diploma. Yellen cited a
2014 Urban Institute paper showing a 79 percent premium in median annual
earnings for full-time workers with a bachelor’s degree.
A
working paper from the National Bureau of Economic Research found that
earnings of the average college graduate in 2008 roughly doubled those of the
average high-school graduate. According to a Georgetown
University study in 2011, even college graduates in lesser jobs, open to
non-degree candidates, “earn between 50 and 65 percent more than those with
only a high-school diploma.”
The
guidelines for sharing FTT revenues should focus on fairness. First in line are
community colleges; they currently enroll 45 percent of America’s
undergraduates, largely from the working class. Then come public colleges and
universities, long a middle class haven.
Today, hit with funding cuts during
the recession, their tuition and fees have skyrocketed.
California’s state
system, for example, has approved a 27.6 percent increase over five
years—raising the in-state charge to $15,560 in 2019-20, not including room and
board.
Opponents
of a higher-education FTT will likely argue that Congress has already done
enough to give the children of working- and middle-class families an equal shot
at college: there are Pell grants, tax deductions, Obama’s American Opportunity
Tax Credit. They all help, but they’re no match for the endless
escalation of college costs. Millions are left behind. Millions are left mired
in debt.
Yellen
noted in her speech that student loan debt quadrupled from $260 billion in 2004
to $1.1 trillion in 2014. The debt burden, always relatively higher for
families with lower net worth, has more than doubled: “from 1995 to 2013,
outstanding education debt grew from 26 percent of yearly income for the lower
half of households to 58 percent of income.”
Wall
Street showered itself with gold in the run-up to the financial crisis. The
Street again struck gold—this time from taxpayers—with the bailout from the
crisis. It was a neat trick to profit so richly both ways, but Wall Street
managed; it should easily be able to manage an FTT.
Even the
tiniest that’s been floated (0.117 percent on stocks and options, 0.002
percent on bonds, 0.005 percent on futures, swaps and other derivatives) could
raise $50 billion a year. Higher rates, still tiny, could bring in at
least $175 billion annually.
Congress
has nothing to lose in the trying, and might even do itself proud.
Ronald
M. Glassman has written several books on democracy. Gerald E. Scorse writes on
taxes.
"For
stocks, mutual funds and bonds...Congress now requires brokerages to report the
basis of these investments, a reform wrought partly after my reporting on this
issue and the work of others, including Gerald Scorse, who pressed this issue
with lawmakers.” – pp. 271-2 of the David Cay Johnston book, The Fine Print.
©
2014 Gerald E. Scorse