While it’s not precisely robbing Peter to pay Paul, a new legislative proposal purports to pay off all student loan debt – with proceeds from a tax that will hit retirement savings.
First touted as an effort to limit speculative trading, the so-called financial transaction tax is now being proposed to help cancel all student loan debt.
U.S. Senator and presidential aspirant Bernie Sanders (I-VT) has repositioned proceeds from his Inclusive Prosperity Act to help pay for the College for All Act, which he claims would eliminate all $1.6 trillion in student debt for 45 million Americans.
Joined in the House of Representatives by Reps. Pramila Jayapal (D-WA) and Ilhan Omar (D-MN), the legislation also seeks to eliminate tuition and fees at all public four-year colleges and universities, as well as make community colleges, trade schools and apprenticeship programs tuition- and fee-free for all.
According to a press release, the estimated $2.2 trillion cost of the bill would be paid for entirely by “a tax on Wall Street speculation,” whereby trades would be taxed at a rate of 0.5% for stocks, 0.1% for bonds, and 0.005% for derivatives. The sponsors note that the legislation would raise up to $220 billion in the first year and more than $2.4 trillion over 10 years.
In addition to making public college tuition free, the lawmakers claim the financial transaction tax will help “reduce speculation and high-frequency trading that is destabilizing financial markets.”
“Because the increased trading on Wall Street over the past several decades has not benefited working Americans, the reduced trading that results from a financial transaction tax would not harm the savings of the middle-class who invest through pensions or mutual funds,” the lawmakers further contend. In fact, they claim that “these people would likely save money because they would be charged fewer fees for trades.”
What’s more, Sanders, Jayapal and Omar assert that, for the “rare household of modest means that trades directly or through a broker,” the legislation would provide an income tax credit to offset the entire financial transaction tax for individuals with incomes less than $50,000 and married couples with incomes less than $75,000. This language is identical to that used to describe the impact of the tax in late May.
At the time, the bill’s sponsors claimed that “…the reduced trading that results from a financial transaction tax would not harm the savings of the middle-class who invest through pensions or mutual funds. In fact, these people would likely save money because they would be charged fewer fees for trades.”
While this transaction tax seems unlikely to go anywhere in the current Congress, look for it to be a hot topic on the campaign trail. The Inclusive Prosperity Act is similar to the Wall Street Tax Act introduced earlier this year by Senator and presidential candidate Kirsten Gillibrand (D-NY), among others, but it sets different rates on stocks, bonds and derivatives based on the existing transaction costs in each market.