by Catherine Rampell, The Washington Post, August 25, 2022
Democrats have adopted a left-wing version of trickle-down economics — apparently believing that the only way to help the needy is to also give money to the rich.
Look no further than President Biden’s student debt forgiveness plan.
Many Americans have struggled with the burden of student debt. They include people who got defrauded by fly-by-night “colleges”; people who acquired debt but didn’t graduate; and people who got degrees but ones not particularly valued by employers.
These people need our help.
But they’re not the only people effectively getting cut a check — or rather, “debt relief.”
Biden’s plan, announced Wednesday, has been framed as extending a lifeline to the bootstrapped, cash-strapped serf. And it does wipe out $10,000 for many low- and moderate-income earners. However, plenty of other, less-strapped people will enjoy a windfall, too. Biden is canceling some debt for households earning up to $250,000 — i.e., households at roughly the 93rd income percentile.
Worse, despite assurances from the White House that relief will overwhelmingly help the poor and middle class, much of the aid will benefit people who’ll reach the tippy-top of the income distribution soon. That’s because forgiveness will go to lots of Americans with high expected future incomes, something progressives have been reluctant to acknowledge.
Many households look middle-income temporarily but are likely to pull in much bigger paychecks down the line. For most people who complete postsecondary educations, college does pay off, resulting in much higher earnings than if they lacked a degree. College is an investment, after all, on which the typical investor gets a good return.
On the high end, that return can be quite high, particularly for those who accrued debt for a professional postgraduate degree.
A newly minted MBA who spent the past two years in the classroom instead of the office, about to start his investment-banking job? He’ll qualify for $10,000 in debt forgiveness. Also the plastic-surgery resident earning, say, $65,000, who in a few years will make $400,000? Again, at least $10,000 in debt forgiveness.
We can pretend that recent graduates of business, medical and law schools aren’t rich because their net worth is temporarily negative, or that people who haven’t started their professional careers yet are low-income — but the truth is that their future income streams make lots of them rich, even if they don’t feel rich quite yet.
Why does this matter? Obviously, it would be nice to give money to everyone. Even investment bankers would probably be glad to have $10,000 shaved off their debt. But we live in a world of finite resources. Surely the past two years have driven home the lesson that there’s limited fiscal space and political appetite for government spending.
This should be obvious, but: A taxpayer dollar spent on one thing is a taxpayer dollar that can’t be spent on something else.
Given limited resources, distributing debt forgiveness to Wall Streeters, Big Law associates and other white-collar professionals is a less equitable use of taxpayer dollars than giving that money to, say, the non-college-educated custodians who clean their bathrooms. Instead, the custodians are being asked to effectively subsidize the debt forgiveness of people who make more money than they do.
Here’s another way to think about it: Biden just unilaterally doled out an estimated half-trillion dollars of taxpayer money. That’s slightly more than the cost of the (near-universal) stimulus checks in his 2021 American Rescue Plan. Except this stimulus went only to people who attended college — who skew much higher-income than their non-college-educated peers.
Biden’s student debt forgiveness plan also costs more than Congress just appropriated for climate change. Or on fighting child poverty through the expanded child tax credit. Or on almost any other issue progressives usually claim to care about. It also more than cancels out all the deficit reduction Biden just achieved through the Inflation Reduction Act.
Biden often says, “Show me your budget, and I’ll tell you what you value.” Well, he has shown us.
To be fair, Biden has — even before this week — implemented some student-debt changes that do a better job targeting borrowers who are struggling. He has wiped out debts of some students defrauded by extractive for-profits, for instance. But the question is why he bothered also giving “relief” to those at the top of the income distribution.
Progressives have offered different rationales for why helping the needy necessitates giving money to the rich as well (not only on student loan debt but proposals such as free college and Medicare-for-all). Some are political, some are operational, some are (frankly) self-serving. Apparently being at the 93rd percentile doesn’t count as rich, at least to some progressives.
Many Democrats, including Biden, have responded to critiques of their plan by pointing to how much money Republicans frittered away on tax cuts for the wealthy. I agree: That was not a good use of government resources either! But one poorly designed, unnecessarily expensive policy doesn’t justify another.
Better to prioritize the people who need help today — and save the rest of our limited tax dollars for those who will need help another day.