Free College

A granddaughter beginning her college career has me thinking about the cost associated with college attendance and the suggestion by certain politicians that college should be made “free” to all.  I suspect that very few of our higher learning institutions would be willing to provide this service for no cost nor would the professors be willing to provide their services entirely gratis, so I assume the politicians intend for the government to foot the bill (meaning the taxpayers, of course).  I can’t help but wonder whether any of them have bothered to put pencil to paper to figure out what that might cost.  I suspect not.  It makes for a good campaign slogan if you’re trying to buy votes from those who are already or are about to be swimming in college loan debt but has to raise eyebrows among the rational minded voter.

I thought I would run some numbers.  My source for many of those numbers was Google, so I cannot vouch for their accuracy, but let’s assume that they are reasonably accurate, certainly for this exercise.

Currently there are about 16.8 million undergrads and 2.8 million graduate students enrolled in college in the U.S.  The cost for tuition and room and board varies substantially with two-year community college the least expensive, private schools like Harvard the most.  Annual costs at some schools may exceed $100,000, but the overall average for tuition, room and board, and miscellaneous costs reported by Google is $39,500, so let’s use that.  The annual bill for all students currently enrolled would be $774 billion, or three quarters of a trillion dollars.  That’s somewhat breathtaking.  We can assume that, as one class of students graduates, it will be replaced by the next class of students, so this number is not likely to diminish.  In fact, if college is “free”, I suspect that there is some percentage of our population that could not otherwise afford to attend that would then decide to attend college in the future.  So, actual cost could be higher to account for any increase in the student population.

Where would the funds come from?  Current federal tax collection is about $5 trillion per year.  Actual expenditure is about $7 trillion.  Does anyone see a problem here?  I can spell it out.  We are adding $2 trillion to the debt every year, have been for awhile (the first Trump administration, the Biden administration, and now the second Trump administration).  Unless Congress can figure out how to stop adding to the debt, paying for “free” college would just increase the amount we annually add to the debt to about $2.75 trillion, maybe more.

The solution, we are told by the same politicians, is to “tax the rich”.  “Yes, yes, tax the rich!” cries the proletariat.  That would solve all of our financial problems.  Hmmm, how much money would that generate?  What has been proposed is a “wealth" tax for anyone whose net worth is $100 million or more.  But, there are only about 11,000 who fit that description, a very elite group.  A modest wealth tax of 5% would only generate about $100 billion.  That may sound like a lot but is only about 4% of the $2.75 trillion we need.  No, that wouldn’t do.  We would have to dig deeper, expand the pool.  Maybe a “wealth” tax on those worth $10 million or more.  There’s a little over 2 million of them.  Applying the modest 5% tax rate would garner about $1.4 trillion, about half of what we need.  I guess we would just need to increase the “wealth” tax to 10%.  That would just barely cover the “free” college and the current amount annually added to the debt.

But someone will need to explain just how this “wealth” tax would work.  First of all, none of the rich have a vault full of cash waiting to pay for a new tax.  Their money is invested in equities and bonds and real estate and other investments.  They own shares in Space Ex, Ford Motor Company, General Electric, and a myriad of other companies and corporations, investments that are the lifeblood of American industry.  The value of these assets can vary from one day to the next depending on what the markets do.  I suppose the tax could be based on what the paper value of a person’s wealth is on a certain day like New Year’s Eve, but that would just be the start of the problem.  The government requires cash for payment, which means that the holders of such investments would have to sell an amount equal to the tax owed to cover their debt.  Even if the government could accept investments as payment of tax, it would have to liquidate them to create the cash needed to pay the college expenses.

And therein lies the problem.  It wouldn’t be just one individual selling large amounts of equities; it would be everyone who needs to make a payment on this tax.  With everyone selling, no one would be buying.  I suspect this would send the markets in a tailspin.  It would wipe out so much market value that the so-called “wealth” tax would garner little the following year.  There would be little wealth to tax.  Without the investments that it depends on, industry would grind to a halt, and a severe depression would follow affecting not only the rich, but everyone in the country.

  Maybe I have it wrong.  If so, I would like to hear from the politicians who advocate a “wealth” tax exactly how it would work and how the scenario predicted above would be avoided.  I might add that the same politicians who advocate free college also promise Medicare for all, housing for all, and other “free” programs (not to mention vague references to reparations), all of which would be expensive, and not a single one of them has explained how all of the “free” stuff would get paid.

Maybe we should pool our money and send them all back to college so they could learn a thing or two about finance.