Today, Explained - Tuition: Impossible

Episode Date: April 25, 2019

Sen. Elizabeth Warren wants to cancel your college debt. To pay for it, she wants to tax the ultra-rich and take more than just their income. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Ellen Nielsen, Politics Vox, Biden announced today, I think that makes it 22 candidates? There are a lot, yeah. I think Uncle Joe is running on folks. Folks, America's an idea. An idea that's stronger than any army, bigger than any ocean, more powerful than any dictator or tyrant. To be fair, I think a lot of the Democrats are running on pure platitudes at this point. But this week, Elizabeth Warren unveiled a big, hefty policy plan. What is it all about? Well, Elizabeth Warren has really sort of made herself the kind of number one policy think tank in the 2020 election. She's been rolling out

a ton of different policies. But the latest one that she rolled out this week was this really sweeping plan that does two things. One, it's a proposal for universal debt-free college for two- and four-year public schools. But then there's also this big new provision that would basically wipe out the vast majority of student debt in America. So it would cancel up to $50,000 in student loan debt for an estimated 42 million Americans. That's a ton. Okay, so this is a huge proposal, but there has been a lot of talk about free college around this primary and prior primaries. When does this idea really begin to pick up steam? So the discussion around tuition-free college really kind of took off in 2015 when Bernie Sanders proposed this idea that at the time was pretty radical. We should have free tuition at public colleges and universities.

That should be a right of all Americans regardless of the income of their families. And that was controversial at the time. You know, during the primary, he and Hillary Clinton debated whether college should be free or whether college should just be subsidized more by the federal government. What was Hillary's take? It was interesting. I mean, she eventually, by the time she became the Democratic nominee, Clinton had basically borrowed Sanders' plan and was proposing her own tuition-free plan at public universities for families making less than $125,000 per year. And it showed the influence that Sanders had in 2016 on her policies. And what's happened since then? Plans have been getting bolder and bolder. So Sanders comes out with tuition-free college in 2015. And then last year, Senator Brian Schatz from Hawaii.

Schatz. Schatz. Schatz. Brian Schatz from Hawaii. Schatz. Schatz. Schatz. Schatz. Schatz. Schatz. So he proposed a plan for debt-free college. And that goes a little bit farther than tuition, because that's basically saying, OK, you have the cost of tuition for public universities.

OK. But then you have all these other costs that financial aid doesn't really help with. So the cost of housing, the cost of books, the cost of food and transportation. And for a lot of students, those those are the costs that really add up. You know, they might be able to get more financial aid to help them with their tuition. But these things are really expensive and can be really prohibitive to students that want to go to college and are trying to get the money to do so. So how does Elizabeth Warren's plan fit in with those three? I mean, it's certainly the boldest plan. This debt forgiveness thing is the thing that she really wanted to tack on to make people take notice because student loan debt is a huge problem in the U.S. I mean, I think right now America has like collectively $1.5 trillion in student loan debt. I remember reading that the Obamas only paid off their debt shortly before entering the White House. I'm paying off my student loan debt right now.

There you go. But yeah, it's like, you know, certainly you think about it. I mean, I have never wanted to go to grad school just personally because I know that I just like don't want to take on more student loan debt. I'm already paying off my undergrad loans. And it was interesting for me to see like after I wrote my story on it on Monday and sort of tweeted out like bullet points, the sort of specifics of her plan. I mean, this is like super anecdotal, but just like the response that it got on Twitter was kind of incredible. Like, obviously, there were people

that were like, I paid off my loans. Other people should have to pay off their loans, too. Like, this is too big. It costs too much money. That's what people were saying? Some people were saying. This is unfair because I have to pay my loans? Yeah, yeah. Get over yourself. I mean, that's how some people feel. You don't want to help other people because you didn't get helped?

That's how some people apparently took this. But many, many more people were kind of quote tweeting my initial tweet that was like, OK, it's going to do loan forgiveness to this much, you know, free college for this much. And I think specifically on the loan forgiveness portion, people were like really excited. There were so many people that were like, Elizabeth Warren has my vote. If she's going to do this, like I'm on board. Is that sort of the genius here that it's appealing not to future generations as much, but current voters? Yes, exactly.

I think it speaks to sort of financial pain that a lot of us feel. But it also, I think, kind of speaks to the root of Warren's campaign and Sanders' campaign as well is like, you know, inequality in America and how we can make America more equal. And I do think that this resonates with a lot of people just because this is something that people are dealing with in their everyday lives. You're dealing with it month to month when you get, you know, your monthly student loan bill. It really is just a thing that people can relate to and people want addressed. How much would just a thing that people can relate to and people want addressed. How much would this whole thing cost? So this has a price tag of $1.25 trillion over 10 years.

Damn. And that cost includes both the student loan forgiveness and the universal free college aspect. And how does she plan to pay for it? She plans to pay for it with this ultra-millionaire tax. Ultra-millionaire tax. Ultra-millionaire tax. Ultra-millionaire. So it's basically people with 50 million or more or billionaires, people like that. She introduced this tax back in January, and she estimates that that tax alone would raise, I think it's $2.75 trillion over 10 years.

So it would take less than half of the total revenue that that tax would raise. So she's already kind of carved out this large piece and saying this chunk is going to go to this higher education plan that I'm that I'm now floating. So it's only taxing the one percent and it's going to help tons of people. Is there any like opposition to this other than the people on Twitter who are like, why I wanted this plan when I had debt? I think there is a debate right now over, you know, whether college should be free or whether people who want to go to college need to pay something for it. Because I think the idea is like if you are invested in your education and like you know that you are going to have to pay this off. It might, in theory, help you stick with it, help you graduate.

That is this idea in theory. But the reality of America's student loan problem is so much that student loans are holding people back from making financial decisions like, should I get married and have kids? Because child care is also expensive. Can I balance out my student loans for child care, for a mortgage payment? It has impacted the economy enough that I think people are looking at these bolder plans as a way to address this. Are the other candidates, the other whatever 20 outside of Bernie and Warren, talking about stuff like this or proposing plans even remotely as fleshed out? Not yet. It is going to be interesting. I feel like Warren, she timed this like right before this massive CNN town hall where she and Sanders both appeared like back to back.

And Sanders was asked about it and he basically said, I really haven't studied it, but I think, you know, Elizabeth and I end up agreeing on a whole lot of issues. And what she understands and what I understand is we don't punish people for the crime of getting a higher education. So I wouldn't be surprised if Sanders kind of comes out with something comparable. It will be actually interesting to see if he kind of sticks with his tuition-free plan from 2015, which is a bill that he's introduced in the Senate and kind of doesn't take this extra step that Warren has. Do we know of any of the other candidates in the race are against a plan like this?

So Buttigieg has basically said that he believes in making college more affordable by expanding Pell Grants and trying to get states to spend more on higher education. But he does not support a universal program to make college tuition free or debt free. And as a progressive, I have a hard time getting my head around the idea that a majority who earn less because they didn't go to college would subsidize a minority who earn more because they did all the way to 100 percent. So that's kind of this argument that we don't want to run the risk of basically subsidizing school for people that can afford it already. Yeah. Basically kind of giving the rich an ability to get free college as well. Does Warren have pushback to that pushback that she's helping people who don't need help? I think that's something that's going to sort of reveal itself as we go along a little further.

In Warren's plan, she said that this relief would be targeted at the people that need it most. So she's going to use like government data on how much money people make and, you know, how many loans they owe, you know, based off of taxes and things like that, to sort of see like who can benefit from this the most. We want to target those people and give them more relief. But I think that that is sort of one of the biggest debates in this sphere. Are we making sure that we're helping the people that actually need the help? Senator Warren's plan would cost a ton of money. And that's where this ultra-millionaire tax comes in. But this tax is kind of unlike any we've seen in the United States.

It's not about how much money you make. It's about how much money you already have. Vox's Matthew Iglesias explains after the break. Take a guess at what the longest-running reality TV show in the history of the United States is. I'll give you a second. Did you guess cops? It's cops. Cops defined reality TV before reality TV was even really a thing. And somehow it is still on today. New episodes and reruns. It's on 15, sometimes 20 times in a single date. Anyway, now there's a podcast about the show Cops. It's called Running From Cops.

It's from Dan Taberski, who brought you Missing Richard Simmons. And in the show, he tracks down the people on the unfortunate side of those episodes of Cops and records their sides of the story and uncovers the darker side of those episodes of Cops and records their sides of the story and uncovers the darker side of making Cops. Dan and his producers watched over 800 episodes of Cops, I'm very sorry, to research their podcast and they explore how much the show has shaped our criminal justice system

and the public opinion of the police. Episodes one and two of Running From Cops are out now. You can find it right now in your podcast app. And subscribe so you never miss an episode. Matthew Iglesias, host of The Weeds. The whole tax that Elizabeth Warren is proposing is not an income tax, the one that we're most familiar with. Some other thing.

Exactly. Something we don't have? This is a tax on wealth. Wealth. Right. So income is like you get new money, right? So you and me, most people probably get paid money at work. Paycheck.

If you own stocks, the stocks pay dividends. That's also income. Maybe you're a landlord, you collect dividends. That's also income. Maybe you're a landlord. You collect rents. That's income. Yeah. Then last, if you sell a stock, right, or some other financial asset and you make a profit, that's a kind of income. That's capital gains. So we pay taxes on all that.

What Warren is doing is she is saying if you have wealth but you're not selling it. You're just keeping it. If you are Bill Gates, if you're Warren Buffett, if you are the heirs to the Walmart fortune, you have a lot of money, right? You're on a Forbes 400 list. You're on the Bloomberg Billionaires Index. And she's saying those people should pay a tax on their accumulated wealth. And no one's said that before? You know, so most people, homeowners in the United States, pay what's called property tax, right? So that's a tax on the value of your home. And that's a wealth tax. In one sense, wealth tax is very uncontroversial. Every city that I've heard of in America has a wealth tax on local homeowners. She's talking

about applying a wealth tax to large fortunes. A few countries around the world, Spain, France, Switzerland, have small wealth taxes. So it's not a completely unprecedented idea. But it's not something we've traditionally done in the United States. If she wants to take on wealth in this way, can't she just also have a higher income tax on rich people, like the kind of thing AOC was talking about earlier this year? You know, I mean, I think she does want to go after these accumulated fortunes because there is something to them, right? I mean, obviously, when you talk about

a guy like Jeff Bezos, he does have a high income. But I bet if you looked at his tax returns, you would be surprised in some ways at how low it is. If you had just been reading the news, you'd be like, this is the world's richest man. But when you read those headlines, what it primarily means is that the value of Amazon stock went up. But he has not realized those capital gains. He hasn't sold the company and earned a huge income. He's just getting richer because the share price is going up. And the traditional tax code says like, hey, look, that's fine. Actually, we want to encourage you to save and invest, right?

And what Warren's bill does is it goes after that because the reality is that we call Bill Gates, we call Warren Buffett, we call Jeff Bezos extremely wealthy, the wealthiest people in the country for a reason, right? There is economic and political power and privilege that comes from having that kind of wealth and that's something that Americans have worried about on and off for a couple centuries. We've traditionally addressed it with an estate tax, right? Which is to say when you die, if you're very wealthy,

there's a tax on the inheritances that you would pass on to your children. Part of her thinking is that instead of trying to take like a huge bite out of a multi-billion dollar fortune one time, which creates this huge incentive to like try to avoid it and then you get away with it, is to say, look, like we need to have a much smaller tax, but that hits that fortune year after year, every year, regardless of whatever else you might do, because otherwise we are going to have not just the founders of today's big companies, but their children and grandchildren exerting a sort of undue influence over the country.

Is there something sort of quasi-un-American about this? Is that why it hasn't happened yet in this sort of particular way? I mean, it's interesting because when you say wealth tax, right? It's like people don't, it's like, what is that, right? It's an unfamiliar idea. Maybe we're going to have a podcast. Maybe it's un-American. But when you say like, oh, paying my property taxes this year, that's like a very normal middle-class homeowner-

Quotidian. Workhorse revenue source for local governments all across the country, except property tax is a tax specifically on the major financial asset of middle-class people. Wealthy people own nice homes, but also have a lot of stocks, bonds, accumulated financial assets, and those forms of financial wealth are not taxed. So there's something very unusual, radical about Warren's proposal. Yeah. But there's also something very normal about it.

Ella said earlier that this tax is just for the ultra rich. So is it just for the Buffetts and the Gateses and the Bezoses? The way the proposal works is that fortunes that are worth over $50 million would pay a 2% tax rate. Then over $1 billion, you'd pay a 3% tax rate. So in total, the economists you worked with on this think it's going to hit about 75,000 families and it should raise about $2.75 trillion over a 10-year period. Which sounds like politically there's no downside to saying we're going to target the most wealthy people in the country slash world to help pay for so much of everyone else's education. What's the argument against doing it? You can think of a few arguments against this. One is that countries that have tried to do this in practice

have often had a lot of problems. The enforcement and evasion stuff is challenging, that you are talking about tackling the most well-resourced people in the world, and you wind up doing a lot of compliance costs and things like that with relatively little sort of upside. You know, her team believes you can surmount those objections. The United States is a much bigger country than a lot of the small European countries

and has some advantages in this regard. I'd say the bigger issue is that a lot of conventional economic thinking would tell you that it is good for a country to have people save and invest wealth. So what Warren is doing is she is saying essentially you will pay a tax penalty for accumulating wealth. Say you're talking about like a fabulously wealthy person and he's considering buying like an incredibly expensive $100 million airplane. OK. That's a lot of money, even if you're a rich person. But if you think to yourself, well, that $100 million, if I just kind of keep it in the bank, I'm going to be paying a 3% tax on it. That means almost like a 3% discount on going out and buying the plane. The basic reality is that this does mean that if you are a billionaire, Warren is encouraging you at the margin to sell shares of stock and go buy fancy boats, go buy airplanes, go buy the most expensive stuff you can think of.

Because if you try to save that money, I mean, if you save it for three, four, five years, 3%, 3%, 3%, it goes away, right? So, like, party now. I mean, I think that Warren would tell you that, you know, this is good. Like we want to dissipate these fortunes. Some of it will be dissipated by directly taxing it, plowing the money into useful social programs. And yeah, like some of it is just going to be dissipated because people are like, I don't know. I'm not going to be such a miser anymore, right? Like it's just going to get – you can't take it with you.

It's going to be taxed away. So whatever. And that not going to be such a miser anymore, right? Like it's just going to get – you can't take it with you. It's going to be taxed away. So whatever. And that's going to create a more egalitarian society. But, I mean, I think conservative economists would tell you it's going to create a poorer society over the long haul. Is there also a chance that these are like the people with armies of accountants and they can just find workarounds and ways to evade attacks like this? I mean it's definitely possible. I also do think that that is part of the case for doing a tax like this, right? Now, some people think there should be no estate tax.

Most Americans think that there should be taxes of estates, that we should not have huge intergenerational dynasties of unearned wealth. But because rich people have a lot of accountants, they have a lot of lawyers, it is challenging to really make them pay what they owe. And the problem with the estate tax is you only die once. You get one shot at levying an estate tax on people.

And if their lawyers and accountants do a good job of kind of pulling a fast one on you, it's kind of like it's done. The thing about a wealth tax is that to successfully hide your assets from the IRS from a wealth tax, you would have to hide it forever. Now, in real world politics, like is this going to work or the first time Republicans come in, are they going to be like, oh, we're not collecting taxes anymore? Like I don't know, right? system committed to a 2% tax on fortunes worth over $50 million would, yes, miss some of the

money, but it would have a lot of chances to go find it. You could follow up. You could say, okay, people are using offshore accounts in this country and they're not sharing the information with us and you could put pressure on that country. Whereas estate tax is this kind of high stakes one-off that the rich people's accountants and lawyers have tended to win. So Americans accept income tax. They begrudgingly pay property tax. They're in favor of an estate tax. Do we have any idea how the general population feels about a wealth tax?

You know, there have been a few polls on this. It tends to do pretty well. It depends a little bit how you phrase it. It's not an incredibly familiar issue. But in general, one of their big concerns with the tax system is that the wealthiest people don't pay their fair share. This is a way of getting at that concern. People don't like to pay taxes personally,

but there is a lot of evidence that people are very concerned that the richest people are not paying what they should be paying. And Warren is basically trying to come up with a new way to make sure that they do. Matthew Iglesias hosts the Weeds podcast from Vox. I'm Sean Ramos-Vurham, and this is Today Explained from Vox as well. Today Explained