The GOP Ignoring Two Elephants: Student Debt and Dis-investment

Mortar Board DiplomaThirty seven members of the U.S. Senate voted to sustain the filibuster of S. 2432, the bill to allow students to renegotiate interest on their student loans, including Senator Dean Heller (R-NV, banks, hedge funds, and capital management firms.)  However, by filibustering the bill the Republicans get  bonuses — the first of which is that they don’t have to have the Elephant in the Room conversation about the benefits of the capital gains tax.

The “pay-for” in the bill is required (or demanded if that might not be a better term) because the federal government would make less money from the interest payments on new student loans, and therefore would cost the Treasury in terms of expected revenue.  Beware of those tossing around the CBO estimates of exactly how much this would cost because the projections were based on S. 2292, an earlier form of Senator Warren’s bill — but the measures are close enough for the amounts not to be dismissed out of hand.  The $55.6 billion is probably a good ball park figure.  However, listen carefully to the critics because this bill doesn’t actually “cost” the federal government much of anything in terms of direct spending — it simply reduces the projected revenue from student loan interest payments.

Here’s the exact language from the CBO Report:

“CBO estimates that about half of the outstanding loan volume for federal student loans and loan guarantees (about $460 billion) would be refinanced under the bill. Because of the lower interest rates on the refinanced loans, the federal government would receive less interest income over the life of the new loans, which would make those loans and loan guarantees more costly for the federal government. Thus, CBO estimates that enacting S. 2292 would increase direct spending for federal loans that are currently outstanding by $55.6 billion (on a present-value basis) in 2015.” (emphasis added)

We could have simply said, why bother with any “pay-for” requirement?  There are some questions which might be appropriate to ask at this point.  (1) How does one ‘score’ the costs of an increasing number of young citizens being able to spend increased amounts of money in other sectors of the economy besides the financial sector?  Might not more taxes be collected as a result of more economic activity?  (2)  Higher education degrees correlate to higher incomes, and higher incomes yield higher tax revenues.  May we not increase our tax revenues by the expedient of having more people with higher incomes, because they have the education and training necessary for higher paying jobs?  The CBO report doesn’t address these two inquiries.

But political realities demand a ‘pay-for’ if the topic under consideration isn’t part of the military-industrial complex and so we move on.

What the Republicans truly objected to, such that the expression Poison Pill was attached to the proposed legislation, [LAT] was the Buffett Rule Tax.  In its simplest form the rule would have those who earn at least $1 million annually in adjusted gross income pay at least 30%.  To insure that we don’t suddenly see innumerable returns all claiming AGIs of $999,999 the Senate version phased in a general statement of “between $1 million and $2 million.” [NYDN]

Before anyone starts shouting “They’re Raising Your Taxes,” breathe.  There does tend to be some fluctuation in the number of millionaires filing tax returns over the years, but the last few give the distinct impression that the range is between 237,ooo and 268,000 filers (since the Mortgage Meltdown) reporting AGIs of a million or more. [TaxFoundation]

Now take another breath, because the IRS estimated there were 236,791,500 income tax filings for 2011, and predicted about 3 million more for 2012.  [IRS pdf]  Some sloppy cocktail napkin calculation with the numbers readily at hand would have us divide 267,996 (the number of millionaire filings for 2010) by 236,791,500 (the number of filings for 2011) and voila –> our plastic brains tell us that the millionaire filings are 0.001131653 of the total, or more understandably, 0.113%.  That’s not even 1%.  But what no one appears to want to discuss is how much of that income is earned.

Capital gains.  The most commonly accepted estimations is that while the statutory rate on interest income is 15% the actual effective rate is about 14%.  And, yes, the people earning massive amounts of income do pay a large portion of the income taxes collected — because we have a progressive tax system in which if a person earns more he or she pays more.   Remember, the idea of minimizing the taxes on capital gains was to encourage investors to buy stock in corporations for the purpose of expansion (and creating more economic activity and jobs), an idea that would work except for what the Wall Street Casino’s been doing of late.

When the financialists grabbed the tiller the ship has been redirected into creating investment products for the sake of creating investment products.   Who benefits from a hybrid class of derivatives based on derivatives based on derivatives?  What business expansion is created when corporations indulge in stock buy backs — not to create more capacity and jobs — but to keep the stock prices afloat?

At some point, whether we are talking about student loans, or SNAP benefits, or the funding of the FDA, the discussion about the equity and efficacy of the tax differentiation between ‘honest labor income’ and interest income needs to be undertaken. If we’re not getting anything desirable (like business expansion) from the differentiation, and we’re just get more destructive exercises in increasing short term  “shareholder value,” then the longer we put off the debate the worse the situation is likely to get. [The “flat tax” flat-earther proposal is a matter for another day, as simply one more way to shift the tax effort from the upper to the middle income earners.]

There’s another equally large Elephant in the Corner which can be safely ignored so long as the filibuster is in place: How did we get into the mess in which students are being inundated with debt?

That one’s not too difficult to answer.  A large portion of the problem is summed up in the word: Dis-investing.*  Demos sums it up:

Up until about two decades ago, state funding ensured college tuition remained within reach for most middle-class families, and financial aid provided extra support to ensure lower-income students could afford the costs of college.

Twenty five years ago tuition provided about 20% of the operating costs for a public college or university, today it’s about 44%.  State legislatures have been “dis-investing” in higher education for the last quarter of a century and it’s catching up with us.  Frankly speaking, it doesn’t quite do to tell public colleges and universities to keep their tuition and fee costs down when their state legislatures are increasingly reluctant to fund them out of general resources.

And at this point it’s probably time to bring up a vote taken by the Nevada Board of Regents about five days ago to increase registration fees.

“Beginning fall 2015, university and community college undergraduate registration fees will rise 4 percent per year for four years. At universities, graduate registration fees will rise 2 percent each year for four years. Nevada State College’s undergraduate fees will rise 2.5 percent in the first year and 3.5 percent each year for the following three years. Tuition was last raised by 8 percent in 2011.” [LVRJ]

What does this look like in real money?

“Registration fees at UNLV and University of Nevada, Reno are now $191.50 per credit. By the 2018-2019 school year, they will be $224 per credit, meaning students taking a full load of 15-credits per semester will pay $487.50 more per semester during the 2018-2019 school year. [LVRJ]

A garden variety BA in Math at UNR requires 120 hours of coursework.  A Math major isn’t required to calculate what’s happening.  A BA in Math now costs $22,980 in fees (we’re not counting tuition, books, other fees, housing, and food) and will cost $26,880 in 2018-19 (not counting tuition, books,other fees, housing, and food.)  In good old arithmetic, that’s a 16.97% increase.

There’s a real balancing act herein. An institution can’t keep its professors, at least not the good ones — since capitalism does work — without keeping salaries at least chasing inflation.  There are only so many “adjunct” personnel adjustments available, and a finite number of graduate students willing to work for peanuts to keep classes going.  At some juncture, unfortunately not that far off, the Band-Aid approach to college and university funding begins to spring leaks.

Somewhere amidst the dis-inclination to discuss taxing the 0.113% and the reluctance to debate the dis-investment in higher education, we have a situation in which students from middle income families, and students trying to become those middle income earners are getting squeezed by the Elephants in the Room.

* For more information on dis-investment as it specifically applies to the University of Nevada, Reno, see: “Final Commission Report – Future of the University, December 2012″ (pdf) See also: The Great Cost Shift Continues: State Higher Education Funding After the Recession, Demos, March 2014.

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