Student loan cancellation could be funded with this one thing.
Here’s what you need to know.
Sen. Elizabeth Warren (D-MA) knows what is. So does Sen. Bernie Sanders (I-VT). You may too. You can call it an Ultra-Millionaire Tax, or wealth tax, and if Congress adopts this new proposal, there could be enough money to cancel student loans and make college tuition-free. Sanders and Warren have two of the most vociferous advocates for wide-scale student loan cancellation. Now, with the introduction of the Ultra-Millionaire Tax Act in Congress, Warren has renewed her call to institute a new tax on the wealthiest Americans. Here’s how the wealth tax would work (hint: it depends how much wealth you have):
- 2% annual wealth tax, or 2 cents for every dollar, on wealth above $50 million
- 3% annual wealth tax, or 3 cents for every dollar, on wealth above $1 billion
For examples, billionaires like Amazon’s AMZN Jeff Bezos could pay $5 billion a year in taxes under this proposal. If you have less than $50 million, you wouldn’t be subject to this wealth tax. How much money could a wealth tax raise? Answer: $3.75 trillion over 10 years, according to Warren. Approximately American 100,000 families would be impacted. Sanders and Warren say that a wealth tax not only would boost revenue for the federal government to spend on education and infrastructure, but also help decrease inequality that has grown as a result of the Covid-19 pandemic.
Will this pay for student loan cancellation?
During her 2020 presidential campaign, Warren proposed wide-scale student loan cancellation for 95% of student loan borrowers:
- Cancel $50,000 in student loan debt for every person with household income under $100,000.
- Provide substantial debt cancellation for every person with household income between $100,000 and $250,000.
- Make student loan cancellation tax-free for borrowers.
- Also make private loan debt eligible for cancellation.
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Today, with Senate Majority Leader Chuck Schumer (D-NY), Warren wants to cancel student loans up to $50,000 for borrowers with an annual income less than $125,000. Warren estimates that this could cost approximately $650 billion. Warren wants the president to cancel student loans through an executive order. President Joe Biden said he’s unlikely to do so and wants Congress to cancel student loans immediately. Biden’s plan to cancel $10,000 for student loan borrowers could cost about $400 – $450 billion. Warren’s wealth tax would easily cover the cost of either proposal for student loan cancellation. Sanders introduced a proposal in 2017 to make public colleges and universities tuition-free, which he estimated would cost $600 billion over 10 years. Biden supports a similar plan to make college tuition-free as part of his broader plan to change student loans. So, Warren’s wealth tax could fund student loan cancellation and tuition-free college with several trillion dollars to spare.
Will a wealth tax become law?
While student loan cancellation remains an important priority for progressives in Congress, a wealth tax would have a low likelihood of becoming law. Democrats would be hard-pressed to find any Republican support, and would struggle to find support from moderate Democrats to pass legislation. There are some issues related to a wealth tax. First, some legal scholars have raised whether a wealth tax is constitutional. Second, there are potential issues related to administration of such a wealth tax, including valuation of businesses and other assets. Third, it would be difficult to assess a tax on assets alone, without counting liabilities, to reach a net worth calculation. That said, Warren and Sanders are confident that such a tax is not only needed, but also is a central solution to many wide-scale issues like student loans, early education, and infrastructure.