(Bloomberg) -- Democratic presidential hopeful Bernie Sanders is proposing canceling the nation’s outstanding $1.6 trillion of student debt and offsetting the cost with a tax on Wall Street transactions.
The Vermont senator said Monday that his plan would provide debt relief to some 45 million Americans who have college loans. It would include a 0.5% tax on stock transactions, a 0.1% tax on bond trades and a .005% tax on derivatives transactions.
Sanders’s proposal, which comes ahead of this week’s Democratic debates, also would provide states $48 billion annually to eliminate undergraduate tuition and fees at public colleges and universities, a longstanding Sanders campaign promise. Democratic House lawmakers including Representatives Anouilh Omar of Minnesota and Pyramidal Jayapura of Washington will introduce the legislation to their own chamber Monday.
Sanders called it a “revolutionary” initiative that would curb student debt and boost the economy by freeing overly indebted consumers to spend on goods and services.
“This proposal completely eliminates student debt in this country and ends the absurdity of sentencing an entire generation, a millennial generation, to a lifetime of debt for the crime of doing the right thing,” Sanders said.
The proposal represents the latest attempt by Democrats to tame what some economists and bankers have deemed a growing threat to U.S. economic growth. Relentless tuition hikes and cutbacks in government spending have propelled student debt loads to triple since 2007, eclipsing car loans and credit cards as Americans’ second-largest source of household debt behind home mortgages. That’s prompted policy makers such as Federal Reserve Chairman Jerome Powell and executives such as JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon to worry aloud that young Americans’ indebtedness is hurting the property market and overall economy.
Sanders’s plan relies on a proposed tax that has been repeatedly rejected by Wall Street and Washington on the grounds that it would stifle growth. Taxing financial transactions “is effectively a sales tax on investors,” Kenneth E. Bent sen Jr., chief executive officer of the Securities Industry and Financial Markets Association, said in an online commentary published this month. “Such a tax never raises anywhere close to the revenue promised, while wreaking havoc for investors and markets,” Bentsen said.
Sanders has been amplifying his embrace of government-centered solutions to policy problems in advance of the Democratic presidential debates Wednesday and Thursday in Miami. Two groups of 10 contenders will face off in a state that often helps decide the White House contest.
Sanders helped popularize proposals for tuition-free college during his unsuccessful nomination fight against former Secretary of State Hillary Clinton in 2016. A few other Democratic contenders, including Senator Elizabeth Warren of Massachusetts, have put forth proposals to erase past debts. Warren’s plan would cancel $50,000 in student loan debt for every person with household income under $100,000. It also would provide some forgiveness for those with household income between $100,000 and $250,000.
Nearly all Democrats have publicly toyed with the idea of either canceling some student debt or increasing government spending to make some public colleges free for some Americans.
Read more about the race to 2020
More than 1 million Americans annually default on a student loan, U.S. Department of Education data show, and about 1 in 9 borrowers are at least 90 days late on their debt, the highest delinquency rate among any form of household debt, according to the Federal Reserve Bank of New York. The Education Department owns or insures more than 90% of all student debt.
Widespread struggles are at least in part a consequence of the fact that virtually anyone can borrow from the U.S. government to pay for college, with effectively little check on their ability to repay. But with joblessness at near record lows, rising wages and a growing national economy, experts question why so many Americans are unable to pay their student loan bills.
Sanders’s proposal is meant to highlight his appeal to progressives as he battles frontrunner Joe Biden, the former vice president who’s taking more centrist stands and pointing to past bipartisan work. Sanders is also facing challenges from other progressives among the two dozen Democratic contenders, including Warren, who has been gaining in national and some early primary state polls.
Sanders embraced “democratic socialism” in a campaign address this month in Washington. Top Republicans, including Senate Majority Leader Mitch McConnell, have sought to emphasize what they say are “socialist” tendencies of Democratic White House contenders as part of their 2020 campaign strategy.
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