The Congressional Budget Office came out with its scoring of the Biden administration’s student debt cancellation plans. The total: a lot.
“CBO estimates that the cost of student loans will increase by about an additional $400 billion in present value as a result of the action canceling up to $10,000 of debt issued on or before June 30, 2022, for borrowers with income below specified limits and an additional $10,000 for such borrowers who also received at least one Pell grant.”
Then there’s the additional suspension of loan payments, interest accrual, and collections from September through December 2022. That’s another $20 billion.
All that’s without considering the effects of income-driven repayment plans or any other changes in loan terms after June 30, 2022. There will also be reduced cash flow to the Treasury, though, at least in 2023, a bit more than 2% of the federal deficit.
According to CBO estimates, 95% of borrowers have incomes low enough to be eligible for forgiveness of $10,000. Then 65% of those income eligible borrowers—that comes out to almost 61.8% of all the borrowers—received at least one Pell grant and so are eligible for the extra $10,000. The CBO also expected that 90% of those eligible for debt cancelation will apply for it and 45% of those eligible for debt cancellation will have the remainder of their loans canceled.
There are arguments on the pro and con sides of debt forgiveness. Those in favor say big debt keeps people from starting families, buying homes, making other large purchases, and otherwise contributing to the economy.
Those against debt forgiveness point to higher incomes of college graduates (although those who don’t graduate are more than a third of those who attend, and so don’t make as much), note that many even relatively recent graduates do manage to pay off their loans, and loan forgiveness requires many millions to subsidize the gained economic privilege of those who attended. There’s also the moral danger concern about people who get something for nothing and expect more in the future.
Much to argue about, much angst for those who think the idea is bad. But for perspective, many of those outraged about this action were perfectly fine with a much larger outlay that largely helped people with more, rather than less, money: the 2017 Tax Cut and Jobs Act.
Trying to understand the impact of the 2017 law is difficult as people who supported and opposed that have variously tried spinning not just what would happen, but what did.
The strain on the truth that ultimately happens comes in part because people want their side to win and at least in part because these topics get so complicated that many commenting, even if they are trying to be offer a fair view, might forget one part or another.
The Washington Post came down hard on Sen. Bernie Sanders (I-VT
Taxpayers in the middle of the overall pack, between the 40th and 60th percentiles, their share of income taxes dropped from 1.4% to 0.6% as the amount they collectively paid fell by $13 billion.
The Post ultimately wrote that Sanders was wrong in his statement and that the share of tax cuts the top 1% received were smaller than their share of federal income taxes, although a “big chunk of the tax cut did go to large corporations.”
However, the big corporations also saw big jumps in stock prices, which largely meant that wealthy people, who own 89% of all U.S. stock value as CNBC reported last year, saw a boost. Let’s remember that the wealthiest take loans against their assets, including stock prices. While income is taxable at a top 37%, borrowed money isn’t taxable. Instead, the cost is interest, and even now with the Fed pushing up rates that’s likely in the lower-to-mid single digits, because these are valuable customers to banks. The wealthy then refinance loans, so basically they’re always in debt and never pay taxes on the increasing value of their assets that make up their wealth. Then there are loopholes that allows the heirs to minimize if not completely eliminate the taxes they would owe on the inheritance.
Even looking only at regular individual and corporate income, if Congress makes the cuts that are supposed to expire in 2025 permanent, the cost would be $2.3 trillion—$2,300 billion—according to The Balance, or 5.75 times larger than the expected cost of the loan forgiveness.
But these sorts of tactics the wealthy use don’t show up in most analyses of taxes because it’s not taxed income. Talk about the real voodoo economics. Money appears from nowhere, doesn’t get taxes, and the value miraculously passes on to heirs. So, who knows just how much the 2017 changes handed over to the wealthy and to corporations, which are also big investors that don’t pay taxes on the increased value of holdings until they sell them off.