Nothing is more central to the American dream than equality of opportunity. In today's world, that usually means a college education — and, for most families, the challenge of paying for it. Congress could help meet that challenge. It could pass a financial transaction tax and dedicate the proceeds to providing equal opportunity for college.
The midterm elections showed a country in a sour mood. They also showed a country hungry for a sense of purpose. In 1961, heralding a New Frontier, President Kennedy committed the nation to sending a man to the moon. In 2015, President Obama could revive that same ideal and commit the nation to sending the sons and daughters of working- and middle-class families to college, and doing it without leaving them deeply in debt. A financial transaction tax would provide the rocket fuel propelling America toward that goal.
Financial transaction taxes are small fees levied on sales of stocks, bonds and other commonly traded instruments. They raise revenue and discourage Wall Street speculation. Currently, 23 nations levy such a tax, and 11 members of the European Union are close to having a version. The U.S. is the only major financial center without one.
The makings of a bipartisan education tax are there. Higher education enjoys appeal across party lines, and both parties claim they're in the corner of Main Street Americans. Instead of just talk, legislators could pass a financial transaction tax that would send more kids to college.
Federal Reserve Chairwoman Janet L. Yellen has emphasized the link between equal opportunity and a college education — and the strains on that link. In October, speaking at a conference on inequality, she put it plainly: "It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation's history, among them the high value Americans have traditionally placed on equality of opportunity."
Studies have confirmed the payoff from a college diploma. Yellen cited a 2014 Urban Institute paper showing a 79% premium in median annual earnings for full-time workers with a bachelor's degree. A working paper from the National Bureau of Economic Research found that earnings of the average college graduate in 2008 roughly doubled those of the average high school graduate. According to a Georgetown University study in 2011, even college graduates in lesser jobs, open to non-degree candidates, "earn between 50 and 65% more than those with only a high school diploma."
The guidelines for sharing revenue from a financial transaction tax should focus on fairness. First in line should be the community colleges; they currently enroll 45% of the nation's undergraduates, largely from the working class. Then come public colleges and universities, long a middle-class haven. Hit with funding cuts during the recession, their tuition and fees have skyrocketed. The University of California system recently approved a controversial 27.6% increase over five years — raising the in-state charge to $15,560 in 2019-20, excluding room and board.
Opponents of a higher-education transaction tax will probably argue that Congress has done enough to give the children of working- and middle-class families an equal shot at college: Pell grants, tax deductions, Obama's American Opportunity Tax Credit. They all help, but they're no match for the escalation of college costs. Millions are left behind. Millions are left mired in debt.
Yellen noted in her speech that student loan debt quadrupled from $260 billion in 2004 to $1.1 trillion in 2014. The debt burden, always relatively higher for families with lower net worth, has more than doubled, and, she said, "from 1995 to 2013, outstanding education debt grew from 26% of yearly income for the lower half of households to 58%."
Wall Street showered itself with gold in the run-up to the financial crisis. The Street again struck gold — this time from taxpayers — with the bailout from the crisis. It was a neat trick to profit so richly both ways; it should easily be able to manage a financial transaction tax. Even the tiniest rates that have been floated (0.117% on stocks and options, 0.002% on bonds, 0.005% on futures, swaps and other derivatives) could raise $50 billion a year. Higher rates, still tiny, could bring in at least $175 billion annually.
Congress has nothing to lose in the trying and might even do itself proud.
Ronald M. Glassman has written several books on democracy. Gerald E. Scorse writes on taxes.