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modest proposals

I see that the proposal to abolish student loan debt is gaining a lot of popularity with the Democratic Party. On one hand, this seems to be mainly a huge subsidy to the upper middle class, who are likely to have attended more expensive colleges and to have higher student loan debt—which of course is exactly what a public choice theorist would predict as a likely real result of government policy, so much of which is created by the upper middle class in the first place. On the other, it's going to be a big hit to the financial system, and to people who have funds in the financial system as a source of financial security. In fact, it's effectively a net transfer of wealth from middle-aged people and retirees to their adult children. It seems to be exactly the "abolition of debts" that James Madison thought the Constitution would protect us against as an "improper and wicked scheme."

So I had two thoughts on ways to mitigate the harmful effects of such a proposal:

First, declare that cancelling a loan is legally a taking of the creditor's property for public use (a loan being an asset to the lender). It therefore must be paid for at fair market value with public funds. That may already be legally necessary, and the question of raising taxes to pay for it may simply not be coming up.

Second, to avoid subsidizing the privileged, set an upper limit on the amount of loan debt that is affected. Make it, say, $40,000 (or $10,000 for each year of a four-year degree). That will work just fine for anyone who went to a state university (which includes some extremely good schools such as the University of California); but it's a fraction of the likely debt of someone who went to an Ivy League school. Statistically it's going to be a lot better at targeting the working class.


( 5 comments — Leave a comment )
Apr. 24th, 2019 04:16 pm (UTC)
I have definitely seen $50 000 floated as a limit for the proposals and IIRC, there was a qualification limit that meant students from high-income families might not qualify. Although I don't think anyone's gone in to how to pay for it directly, there are cost numbers floated (and compared to, e.g. wars, which are much more expensive), which I was assuming would be the cost of buying out the debt from the lenders (plus admin etc.).
Apr. 26th, 2019 07:12 pm (UTC)
Senator Warrens proposal is debt forgiveness by the government held loans, up to $50,000 and is paid for by a 2% marginalized tax rate on income over a million. So basically its a stimulus package targeted at former students.
Not sure how I feel about it but I feel its way better than typical ones based on trickle down economics.
Apr. 26th, 2019 08:31 pm (UTC)
Well, I have to say that I'm not favorably impressed by this recurring fantasy that you can make rich people pay for everything and it won't have any cost. It leads to fairy godmother economics. If it can't be paid for out of general revenues, then it's economically unsound.
Apr. 28th, 2019 08:48 am (UTC)
I understand that, as I said I'm kinda iffy on it myself.I see pros and cons.
If more people have a chance to get better paying jobs the entire economy does better.
If that is done by a tax deficit its just kicking the can down the road and likely to lead to greater problems, though IF wages actually increase so does tax revenue so it could still be a long term gain.
On the other hand if its revenue neutral by making the millionaire class pay extra its not hurting the deficit, is overall boosting the economy (poorer people spend a larger percentage of income so that creates larger consumer demand and possibly more jobs) but its definitely wealth redistribution.
Apr. 28th, 2019 03:14 pm (UTC)
The amount of things that people imagine can be paid for by taxing the super-rich tends to increase without limit, to the point where even a confiscatory 100% wealth tax could not pay enough.
( 5 comments — Leave a comment )

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