It has been a very intriguing presidential race to say the least this year. A lot of outsiders running and making a lot of noise. One candidate who has surprised me a little bit is Bernie Sanders, a self proclaimed democratic socialist. At first, he appeared to have no chance at all and seemed like he was going to get blown away by former Secretary of State Clinton, but now towards the end he has started to win more states and claims that he will take the race all the way to the convention. One of his ideas that has intrigued me is his idea for free college, my question is, is this idea too radical of an idea?
As a kid going to college next year that sounds great, but the reality is that free public college is hard to achieve. The idea would cost Sanders around $75 billion dollars per year, more than twice what the government spends on Pell grants. Much of the money would provide free education to students whose families can already afford it. Would free college make higher education more efficient, more innovative, and higher quality? In my opinion I would say no. Colleges may not have the financial resources to improve their schools. I think that the quality of education would go down. Colleges would have to find a way to save money and hire lower quality professors to do so. The higher quality professors would seek higher paying jobs at private institutions.
Sanders wants to tax wall street a small amount in order to make college tuition completely free. NPR asked 22 economists if this would work, and 20 of them said it would be a bad idea. Sanders would need about $75 billion dollars a year in order to make his free college proposal work. Under the bill he wrote, investors would be required to pay an excise tax on any transfer of a stock, bond, partnership interest or derivative. Stock trades would incur a .5% tax rate or $5 for every $1000 of stocks traded. It would raise quite a lot of money for the government because of the size of U.S. financial markets.
But, putting a tax on wall street could potentially have consequences. The economy could suffer if tax is put in place. When the European commission looked at the issue, it found that a tax of .1% would reduce gross domestic product by 1.76% in the long run, because the tax raises the cost of capital resulting in less investment and diminished economic output. Also according to an investment company institute, a transaction tax could increase the expense of investing in an equity index fund by ⅓. Also when Sweden put in place a 1% tax on equity trades in 1983, the result was a 5.3% decline on the stockholm stock exchange. Would it be smart to tax Wall Street when studies claim that it is not a good idea? Wall street is at the heart of the American dollar, when wall street is doing well, the American dollar is doing well, is free college worth that risk?
Also a problem arises when you give something up for free, the demand would pick up, and eventually the price would pick up. When the price would increase, the government would have problems paying for the extra amount and put it on the taxpayers to pick up the slack. One economist said that our higher education system is the best in the world, but if you look at our primary education it is one of the worst in the world because it is free. There are systems in Germany and Denmark that have “free college” but again, taxpayers absorb much of the costs. We spend more and more money on schools (K-12), but are kids getting smarter? Many kids take free education for granted because it’s free, what happens when college is free?
Because public colleges would be funded by the government, ultimately they would also have control of these institutions. I struggle to find a government run program other than our military that is successful. Obamacare, medicare, social security, the IRS and the USPS, all seem to have waste and/or are mismanaged.
Is this idea of free college tuition too radical?
Is there a way to make college more affordable without any consequences?