It isn’t surprising that many young people support Sen. Bernie Sanders, D-Vt., and his plan for tuition-free public college. After all, people respond to incentives. When an individual is presented with a policy that provides them with enormous benefits at little to no cost, they will obviously support that policy barring any moral objection to taxing others to pay for such a benefit. Very few people hold that objection, and government is viewed as an institution through which people attempt to get what they want and compel others to pay for it. Consequently, proposed programs like tuition-free public college that intend to benefit the 99 percent at the expense of the rich are extremely popular.
Sen. Sanders’ free college plan carries an estimated cost of $75 billion per year, and he plans to pay for this “by imposing a tax on Wall Street speculators that would generate about $300 billion in revenue” per year. As is typical with Sanders, he frames his proposal as helping average Americans by taking money from greedy, evil, “Wall Street speculators” who don’t deserve it. Essentially, the sentiment is that rich people ought to pay for college instead of the student or their family themselves. By calling his proposed financial transactions tax a tax on “Wall Street speculation,” Sanders appeals to those who support class warfare and want others to bear the costs they incur. However, a financial transactions tax doesn’t just affect Wall Street speculators (a derogatory categorization that implies financial actors provide no value)—it affects everyone who isn’t living paycheck to paycheck.
The Wall Street speculation tax Sen. Sanders proposes actually imposes a tax on many financial transactions: 0.5 percent on stocks, 0.15 percent on bonds and 0.005 percent on derivatives. Many people directly or indirectly trade these instruments—not just the fat cat bankers that Sen. Sanders wants you to envision. Anyone with a 401k or other investment account has positions in stocks and bonds, and while few average people use derivatives like futures and options, corporations and institutions certainly do in order to hedge risk or generate a return for their clients no matter the direction of the overall market.
Ultimately, it will be everyone except the very poor with no investments who end up paying the financial transactions tax. Rich people trading stocks, bonds and options would certainly pay that tax as well, but the majority of the revenue generated would come from asset management firms who actively trade for their clients. Since they largely are not trading their own money, the cost of the tax would trickle down to their customers who just so happen to be regular people. There are a host of other issues associated with a financial transactions tax, namely decreasing the volume of transactions, increasing the bid/ask spread and so on, but Sen. Sanders isn’t proposing the financial transactions tax to attempt to end high-frequency trading or create a more perfect financial market—he’s just trying to get rich people to pay the tax that makes college free. A financial transactions tax is anything but a tax on exclusively rich people. Evidently, Sen. Sanders’ free college plan is more about the free college itself than the means of paying for it. However, I find it disingenuous to suggest that the proposed financial transactions tax is analogous to “Wall Street bailing out Main Street.” All the proposed tax would do is partially socialize the cost of education at the expense of everyone with a positive net worth, and that is very different than a tax that would only target rich bankers. If you really want to enact the class warfare that is demanding rich people pay for college, you are better off advocating for something other than a financial transactions tax.
Tim is freshman majoring in finance and economics. What do you think of Sen. Sanders' proposed tax? Please send all comments, questions and concerns to opinion@dailycardinal.com.
