The noted philosopher Vizzini famously warned against getting into a land war in Asia or going against a Sicilian when death is on the line. Now Sen. Bernie Sanders is putting rival Sen. Elizabeth Warren on notice that she made a modern, classic blunder: Never get into a bidding war with a socialist when you’re playing with other people’s money.
The surging Warren made waves back in April when she proposed a plan to forgive most student loan debt, that she said would cost $640 billion. Additional money for free college tuition would bring the cost to $1.2 trillion, she said.
On Monday, however, Sanders is proposing eliminating the entire $1.6 trillion of outstanding student loans. On top of that, he’s promising to make public universities, community colleges, and trade schools free.
The proposal would carry all of the problems associated with Warren’s plan, including the high cost and the moral hazard problem of signaling that the government will step in to wipe out debt so there’s no reason to sacrifice to pay it off. But it would exacerbate the problem of providing a massive subsidy to a segment of the population that is relatively well-off.
At the time of Warren’s proposal, Reason’s Peter Suderman, among others, noted that the plan was a giveaway to college graduates who have better connections and higher lifetime earning potential than those without a graduate degree.
But Warren’s proposal was somewhat limited — offering debt cancellation of up to $50,000 to more than 42 million people, or 95% of those with debt. She said that will completely wipe out debt for 75% of borrowers with student loans.
Sanders, however, wants to eliminate 100% of debt, both public and private, including graduate school. That means people with advanced degrees, from upper middle class families, with six-figure salaries, would benefit from the plan. Working doctors and lawyers would be getting a massive government handout under this proposal.
Not surprisingly, Sanders believes that the plan could be paid for by a financial transactions tax he claims would raise $2 trillion. Even if it did, which is a big “if” given the potential for tax avoidance, that would be $2 trillion of revenue that could no longer be available to address other national priorities. But all that matters to Sanders is being able to claim he’s taxing Wall Street to wipe out everybody’s student loans.
The proposal comes as Sanders has been trying to fend off competition from Warren, who is supplanting him in many polls by appealing to many of the same voters.
Despite his extravagant proposal, Sanders is still leaving room for another contender to see his plan to wipe out all student debt, and then raise him — by offering retroactive debt forgiveness to anybody who paid student loans for the last 20 years.
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