This morning, Senate Majority Leader Mitch McConnell may have blown up Republican Senate chances in Georgia by rejecting the increase of direct stimulus spending to $2,000. His nickname may be Grim Reaper, but Mitch said that was for socialism — not the Senate Republican majority.
The $2,000 dollar “stimulus” not being injected into the economy will not doom our economy. In fact, in the long run, it is a boon. However, a Democrat-controlled Senate will doom the American economy through the implementation of communist wealth transfer policies.
I do not personally agree with more stimulus spending. I would prefer an open economy. But since Congress is spending trillions on pork for foreign and special interests while shutting down the economy, might as well give Americans some of their tax-dollars back. Moreover, I would prefer a government that trusts its citizens to be responsible enough to deal with a virus that is nothing more than a cold to greater than 99% of those who are infected. Trust me, I would know. However, apparently, I was on the naughty list this year.
There is a “new” strain of a “fast-spreading” coronavirus.
If you let them scare you with one virus, you can surely bet they plan to scare you with a second one.
The policies a Democrat-controlled Senate would enact would spread communism ever further in our laws and markets—possibly faster than this new strain of COVID. Democrat policies of raising taxes and government spending are proven, time and time again, to be detrimental to the economy. With an economy expected to shrink 5% this year, the policies we should be implementing should be ones that accelerate growth, not hinder it. Common sense.
However, Democrats in Congress seem to lack that. God help us. One of these proposed policies is student debt cancellation. Reality check: it was a dumb idea last year; it is still a dumb idea this year; it will continue to be a dumb idea next year. And all the years after that. I examined why the Democrats’ proposed policy of canceling student debt is an asinine assertion economically and morally last year for The Federalist.
I am not here to rehash what I argued in my piece last year. The arguments are still valid. I have learned a new thing or two in the year-and-a-half since, so I thought I might as well share the wealth.
Democrats claim wiping out all student debt will put money in people’s pockets, create jobs, and spur economic growth. These are the claims for all other policies on their wish list. But will canceling student debt or any other Democrat policies really put more money in people’s pockets, create jobs, or spur economic growth?
The federal government originates 90 percent of student loans today and is the largest creditor of the $1.6 trillion in student loan debt. But the government doesn’t hold all of the liabilities. With the Federal Reserve keeping rates low until 2023, economics suggests more student debt will be refinanced. This will transfer assets to private banks—which would need to get paid for these debts. The last time our government bailed out the banks, they were rewarded handsomely.
What methods could the government use in cancelling student loan debt?
For starters, since, as it stands right now, it is the creditor of most student debts, it could, in theory, write off those “bad” debts entirely. But how would that place more money into people’s pockets? Under the Internal Revenue Code, the discharge of indebtedness would count as gross taxable income. 26 U.S.C. § 108.
For a realistic example, take someone with $150,000 in student debt, makes the median Bachelor’s degree income for 2019 ($56,700), and lives in California. The total taxes paid would be $13,728, a 24.22% effective tax rate. Net income is $42,972.
This taxpayer, through the discharge of their unpaid student loan debt, now has a gross income of $206,700. Id. “Except as otherwise provided…gross income means all income from whatever source derived…” 26 U.S.C. § 61. The total tax bill then increases almost seven-fold the prior tax liability and almost two times net income. Clearly, there’s a dilemma.
Democrats and the media state the “average amount” of student debt is $30,000. But statistics can be misleading. If borrowers were more likely to be around that amount than not, i.e. “average case,” then we would not be in a “debt crisis” “needing forgiveness.” Paying off the loan would account for only 2.4% of expected lifetime earnings for a Bachelor’s degree.
Maybe such initiative does allow people to keep more of their money—but it seems it would be because people need to spend more on taxes. This misallocation of private capital would stifle growth because one person’s spending is another person’s income. Every dollar paid in taxes is a dollar not spent in private markets.
The government could agree to fully forgive the debt and taxes owed, however, that would be a utopia. Moreover, the government has used in its revenue projections money generated from the loans. Shortfalls would need to be made up somehow, somewhere, because Congress loves spending. (The hyperlink on spending is not for the faint of heart.)
Shockingly, the Biden-Bernie Manifesto’s student debt plan gets worse. It guarantees lower wages, slow economic growth, and incentivizes people to work for the government. And higher taxes for the “wealthy.” A famous economist once said Democrats have no compassion for tax-payers, it is a wonder why tax-payers vote for them.
People who make under $25,000 will have monthly payments and interest “paus[ed],” and no more than 5% of “discretionary income” paid to the debt. If discretionary income is codified in any way close to how it is in the Bankruptcy Code, it is doubtful there will be any. After 20 years, debt will be forgiven.
For those who choose to work for public schools, government, and non-profit organizations, enrollment in the public service loan forgiveness program would be automatic. Incentive bonus to vote Democrat, the program will give $10,000 more in student debt forgiveness per year per enrollee for up to five years. $50,000 and lower monthly payments would seem wildly unnecessary if $30,000 was the average case.
What about all the borrowers who make more than $25,000 a year, and do not want to work for the government?
Well, someone has to pay for the Democrats’ wish list.