Senator Elizabeth Warren (D-MA), a potential 2016 presidential candidate, says Congress should hike taxes on families and small businesses making more than $1 million, then use the tax revenue to let debt-ridden students refinance their college loans.
Speaking at the Center for American Progress on Thursday, Warren outlined a plan which, in order to lower the interest rate on student loans, would revive the proposed Buffett rule. The tax hike, which has the support of President Obama, has stalled in Congress.
Warren estimated the measure would raise at least $75 billion and upwards of $100 billion. (Those figures are significantly higher than other estimates.) Under her plan, Warren said the tax revenue would be used to keep the student loan interest rate at 3.86 percent.
Right now, in order to finance the United States government, we take in billions of dollars of profits for student loans, but permit billionaires to have enough loopholes that they pay at tax rates that can be lower than those of their secretaries.
This is a straightforward choice: We can take $75 billion and either way we’ll use it to protect tax loopholes for billionaires or $75 billion can be used to help students to refinance their outstanding student loan debt. It’s billionaires or students.
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Senate Democrats have repeatedly attempted to revive the Buffet rule, which President Obama first proposed in 2011. (The measure is named after billionaire investor Warren Buffett.) If enacted, it would apply a 30 percent minimum tax rate to Americans with adjusted gross income of more than $1 million.
Heritage experts Curtis Dubay, a senior tax policy analyst, and Rea Hederman, director of the Center for Data Analysis, have debunked myths about the Buffett rule, including those perpetuated by Warren in her recent speech. They note, for example, that families earning above $400,000 already pay an effective rate on all federal taxes of 29 percent. Furthermore, the top 10 percent of income earners pay 70 percent of federal income taxes.
“Implementing the Buffett Rule would raise little revenue compared to the massive spending President Obama wants,” Dubay and Hederman write, “but it would put a severe drag on economic growth and job creation.”
According to calculations from Heritage’s Center for Data Analysis, taxpayers with an adjusted gross income between $1 million and $1.5 million would, because of the Buffett rule, face a tax hit of $67,000.
Heritage’s Brittany Corona, a research assistant in education policy, has criticized the federal government’s involvement in the student-loan business, citing, in particular, the unknown long-term costs to taxpayers.
“Continuing to expand higher education subsidies through subsidized federal student loans and grants does nothing to put pressure on colleges to lower costs,” Corona warned. “In fact, access to easy money does the opposite, enabling universities to raise prices, knowing students can return to the federal trough for more financing.”