Bernie Sanders wants to give American students free public college tuition. He wants to fund it with a taxation on Wall Street speculation. If you’ve heard any of his speeches/rallies over the past nine months, you know all about this plan. And, if you’ve been following Sanders’ strong showing in the Iowa Caucus and New Hampshire primary, you know that young people are eating it up like a free lunch.
Per CNN, 83% of Democrat voters under the age of 29 voted for Sanders in New Hampshire.
At first pass, there’s a lot to like with Bernie for young voters. Free college? Sure. College debt reductions? Sounds great.
But it’s important for voters to understand that money is a zero-sum game and some second-level thinking shows how quickly the beneficiary of a Wall Street-funded college experience under Sanders may be set back. It’s just hard to unanimously win from any system regardless of age, income or status.
Let’s assume for a moment that Sanders does fund public college tuition with Wall Street dollars. Let’s pretend that America and its governing body deems such a maneuver as in the best interest of the country, and let’s assume that other Sanders proposals (like his tax rates) come into effect.
Four years of tuition at a public university would cost (according to the College Board) Wall Street $36,556. Let’s round up and call it a benefit of $37,000 for college students. Let’s ignore Wall Street and the broader economy for a moment and count the unanswered questions related to these free-learning students:
- What does this do to the cost of room and board and the standard of living in college towns? Presumably, an influx of non-tuition-paying students may mean an influx of students with disposable money (from parents). We tend to think of “free college” as it relates to lower-income students, but students with family money to burn won’t stop going to college just because it’s free. So this likely means an increase in prices on everything from delivered pizza to off-campus housing. I can’t put a dollar figure on that, but it hurts. Notoriously cheap college towns would feasibly become less cheap if students saw an increase of more than $9k per year in government funding. And, there’s no reason to believe that students wouldn’t still take on outside debt to cover their inflation-stricken bar tabs.
- What happens to college town pay rates? Already suppressed wages in college towns (where the labor force is generally large, willing and cheap) may actually decline. After all, if the money isn’t paying college bills and there’s still a surplus of workers, it’s possible that employers will keep wages at minimum wage for students seeking truly disposable (but non essential for the college experience) income. As an employer, I’ll pay more for a student to pay for classes than I will for a student to go bowling.
- What’s the value of a degree if students can earn it free of monetary cost? Certainly, finances aren’t the only hurdle to clear on the path to earning collegiate validation, but they’re a a big one. If finances weren’t a major (and for now, seemingly worthwhile) hurdle to clear, student debt wouldn’t be a problem. Free college increases the number of attendees and water downs any novelty that accompanies college completion.
But beyond these questions, it is important to remember that money comes from somewhere. In the case of free tuition per the Sanders plan, the money comes from Wall Street speculation. But that doesn’t mean students receiving the fee education can’t be adversely impacted by another Sanders policy. A $37k perk is attractive to a young college student. But it doesn’t guarantee a long-term advantage.
Vox has a nice breakdown of how Sanders’ tax plan compares to current rates of taxation. To hear his talk, only corporations doing business oversees, Wall Street and billionaires will be hit. That’s patently incorrect.
So let’s think about a new college graduate under Sanders’ plans. Per the National Association of Colleges and Employers, the average graduate in the class of 2014 earned a starting salary of $45,478. Let’s bump that up by 3% a year (of note, starting salaries actually increased 7% from 2013 to 2014, so we’re being conservative here) to reflect this year’s graduating class earning an average starting salary of $48,247.61. And, let’s assume that a 3% ongoing raise continues.
After 24 years of taxation at Sanders’ proposed tax rates, the hypothetical college graduate in this scenario will have paid $37k more in income tax than under the current tax plan. That’s your theoretical “break-even” point. And there are two important caveats to this scenario:
- This study is all about “average” Americans. This doesn’t assume that the average graduate rises abnormally quickly; it assumes that the graduate sees a 3% increase in pay per year. And from the very first year, Sanders costs the graduate money (a bit more than $1,000 more in taxation in year one).
- A 24-year scenario may sound ludicrous to an 18 year-old, but this brings the worker to an age of 46. Every year thereafter costs the worker valuable money. And if the worker does progress faster than this scenario, the sunk costs just occur earlier.
But what’s even more important for young voters to understand are the other, larger numbers on the charts above. The Total Wage Tax number on the far right takes into account income tax (the first numbers in the bars) and payroll tax (the numbers on the right side of the bars). We’ve addressed income tax, and it’s not a good thing long-term for young workers. But consider payroll tax. To do that, put yourselves in the chair of an employer.
If a college degree is more accessible than ever before do you think you will pay more or less for a recent college graduate’s degree? If you would pay more, then you should vote for Bernie Sanders because you are like-minded. If not, you should strongly consider other options.
If it costs you more to employ an entry-level college graduate do you think you will hire more of them or fewer? Do you think you will pay them more or less? If you would hire more employees because they are now more expensive to employ, then you should vote for Bernie Sanders. If not, you should strongly consider other options.
And it should be noted here that I think everyone should vote for the candidate most-aligned with their views on issues. I think everyone should vote for the candidate that helps them out the most. And for some people, Bernie Sanders is unequivocally that choice. Just make sure he’s not the choice for you solely because you’re getting 4-years of free education. Maybe use some of that education and project where you want to be five, ten or thirty years from now. Is a $37k perk at this stage in your life the game-changer you thought it would be?
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