In May of 2015, to the delight of millennials and and their parents everywhere, Bernie Sanders introduced the ultimately doomed College for All Act to provide free college tuition to anyone attending a state college or university. To finance this effort, a tax would be imposed on “Wall Street speculation”to raise the roughly $70 billion needed to fully subsidize tuition. There certainly exists an element of catharsis, and perhaps public appeal, in penalizing the investment institutions that drove our economy off the cliff in 2008. For a moment, let’s ignore the absolute maelstrom of dark money that would flow into Super PACs and derail any such legislation. Did it ever truly make sense to punish our most useful industry- the guys that put the “capital” in capitalism?
Under Senator Sanders’ original proposal not only would Congress have to pass massive campaign finance reform (super hard), but he would have to convince millions of American’s that they won’t someday be those millionaires and billionaires shouldering what any lay observer would see as an unfair tax burden (super duper hard). This bill was all but guaranteed to be gleefully murdered in committee.
In an effort to shore up her support among Sanders’ primary voters, Hillary Clinton has proposed her own overly complicated and anemic tuition assistance strategy. Her plan includes investing $25 billion into historically black universities and colleges along with other minority serving institutions, free tuition for households making less than $85,000/year, a mechanism for existing borrowers to refinance at current low interest rates with debt forgiveness after 20 years. The most amusing part of Secretary Clinton’s plan is to fully forgive the loans of anybody that gives three years of service to Americorps.
Don’t be shocked if that last bit sounds familiar. It is a near exact replica of her husband’s failed and incredibly expensive vanity project from the 90’s.
Rather than targeting investment bankers, she ambiguously claims to be able to pay for this plan by “limiting certain tax expenditures for high-income taxpayers”. As of writing this, she has thus far failed to elaborate on which, or any, deductions she would limit. This is how you play tennis without the net.
None of this is to say that publicly financing college tuition in this country isn’t possible, or for that matter, even politically difficult. The federal government has so much waste in its spending and so many senseless handouts in the tax code that the $70 billion that would be needed to finance a free tuition effort would essentially amount to a rounding error in the federal budget.
To find the funds for this you need look no further than the most useless and ineffective tax deduction of all: the mortgage interest deduction. If you itemize your taxes, the IRS allows you to reduce your taxable income by the amount of interest paid on the mortgage for your home that year. At face value this might seem like a useful deduction that would encourage home ownership. However, since the deduction is only available to those that choose to itemize their taxes in lieu of the standard deduction, 75% of the $70-100 billion in tax savings goes to the top 20% of households(combined income of over $160,000)– families that aren’t exactly a small tax deduction away from purchasing a home. Simply put, the deduction is only ever utilized by households that don’t need it.
But it is not without its defenders. The MID usually increases the maximum loan amount available to prospective homebuyers by several percentage points, so the National Association of Realtors understandably has a vested interest in its survival. Lobbyists from the National Association of Realtors have spent over $20 million so far in 2016, primarily to influence policy makers to keep the MID on the books.
Jimmy Williams, former NAR lobbyist, reacted to the prospect of eliminating this deduction on NPR in 2012,”If I were at the Realtors right now, I’d declare war” on any elected official supporting it. He’d ask legislators, “You really want to go down this path? That’s just not a really smart way to run for re-election.”
And don’t expect Hillary Clinton to go to war with NAR over the deduction either. She too has taken cash from the NAR. In 2013, the former Secretary of State spoke at the NAR Expo in San Francisco, accepting a totally reasonable speaking fee of $225,000 that would seem to imply her protection of their sacred cow.
However, now that more than 40 million Americans hold over $1.2 trillion in student loan debt, this is just the right time for congress to convince the NAR to step aside. According to Harvard University’s Joint Center for Housing Studies, homeownership in the 25-34 age group decreased 8 percent from 2004 to 2013. The NAR very well could change their tune when presented with the prospect of a incoming generation of homebuyers that will have a disastrously restricted mortgage capacity if they are automatically saddled with an extra $30,000 of debt burden that might otherwise go towards a home loan.
Existing federal programs that partially subsidise college expenses for low-income students such as Pell Grants would become largely redundant, and those funds(worth upwards of $30 billion annually) could potentially be reallocated towards incremental forgiveness of the $1 trillion in existing federal student loans, providing current borrowers with additional mortgage capacity right away.
Eliminating student loan debt would be the most economically impactful legacy the next administration could leave behind- on par with the GI Bill and the New Deal. The task of combatting the real estate lobby with its deep pockets and million members will certainly be fraught with political peril, but policy makers on both sides of the aisle would do well to factor the electoral math of 40 million voting-age Americans already carrying an average of $30,000 in student debt. Publicly financing higher education is simply the most effective way to ensure a generation of vitality in the residential real estate market, and carries the added benefit of providing every young American with a clearer path to stamping the surest ticket to sustained economic prosperity in the known universe- a college education.