Wednesday, September 30, 2015

How Expensive is Free College Tuition, Anyway? (Part 2 of 13)

(Note: This is the second of a series of posts dealing with Bernie Sanders's platform. For the first installment, go here: Part 3 Part 4 Part 5 Part 6 Part 7)

I saw this posted on Twitter the other day, and I think it's worth taking a second look at, because it demonstrates a remarkable lack of understanding of Bernie Sanders's platform. Senator Sanders makes it very clear how we will pay for everything that he proposes, but understanding the nuance of this requires first that I disabuse you of a common misconception.

There are many in this country who decry government spending as if the government is incapable of doing anything well. But the critical issue of our times, as Robert Reich eloquently explains on a regular basis, is not how big government is. The critical issue of our times (and Bernie Sanders, more than any other Presidential candidate, understands this) is who government is working for. Whether we're talking about spending in the private sector or spending by the government, at the end of the day, everything that is spent in our economy counts as a cost for America. If Wal-Mart spends $1,000,000 improving the efficiency of the intersections near its stores, it has the same effect on our economy as if the state, local, or federal government spends $1,000,000 on an identical project.

So, with that in mind, how does America pay for Free/Affordable Public College, as described in the flyer pictured above? Let's take a look:

Senator Sanders hasn't released an official platform on free public tuition, and amazingly, his supporters haven't put together a section on it, either. So this is a question we're going to have to figure out together. Using data from the Department of Education (PDF), we can see that in 2012, all colleges and universities combined charged a total of $62.6 billion in tuition, and collected a combined total of $44.7 billion in federal, state, local, and private grants, for a total cost of education of $107.3 billion. According to the Congressional Budget Office, total federal spending that year was $3.54 trillion (PDF). So the total cost of free tuition in ALL colleges and universities in the country (not just public ones) would have been $79.5 billion more than the Feds already spent (after subtracting the total of federal grants from $107.3 billion). That's about 2.24% of the Federal budget. And that assumes that the federal government pays the whole amount.

Senator Sanders has proposed, however, that the federal government would pay two-thirds of the cost, with the states chipping in the rest. This brings the total federal outlay down to $71.5 billion, which is only an increase of $43.7 billion (about 1.2% of federal spending). So we're not really talking about a large expenditure here, and this ignores the fact that Senator Sanders' plan is limited to public schools, rather than private ones (who instruct about a quarter of students, but presumably - because tuition is much higher - accounts for much more than a quarter of all tuition/grant costs). Still, it does involve an increase in spending, so we should still have a discussion about where the additional revenue will come from. It's cheating to say we can cut military spending (because OF COURSE we can cut military spending, but OF COURSE we never will), so let's see if we can find another way.

Fortunately, Senator Sanders has told us how he intends to pay for it. He proposes enacting a tax on securities transactions, sometimes called a Tobin Tax (after James Tobin, a Nobel-winning economist who proposed the tax in the 1970s). The idea behind this tax is that it would not only generate revenue, but it would also discourage harmful speculation, making short-term "noise investment" activities less profitable, while having little effect on long-term, productive investments because of the small percentages involved. According to a study conducted by the University of Massachusetts in 2009 (using 2008 trading volumes), implementing this tax could raise as much as $353.8 billion annually (assuming no effect on trading volume) or, more "conservatively," $176.9 billion annually (assuming the tax reduces trading volume by 50%).

As you can see, even with a drastic decrease in trading volume as a result of this tax (which ranges from .5% to .01% of the value of the transaction), this type of tax in 2008 would have generated sufficient revenue to pay for every student's tuition at every college or university in the United States in 2012. This is a proposal that easily pays for the service it sets out to pay for, while leaving somewhere between $97.4 billion and $310.1 billion for other governmental programs, debt reduction, or tax reduction.

Not only would it easily generate sufficient revenue, and then some, but the reduction in trading volume would also reduce the volatility of securities markets, ultimately giving us a more stable, stronger economy.

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