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What Do the Children Know?

As reported in the news media recently, there have been a series of student protests on university campuses. A number of grievances have been reported (although some of these are so vague that I have no idea what they really are) but one issue in particular caught my attention. That concerns student loans and there appear to be demands by some students that all student loans should be paid off by someone other than the students who borrowed the money. Specifically, there was an interview on one news outlet with a student “leader” where this student issued a demand that all students loans should be paid off by the rich, however defined.

This got me to thinking.  Does the student know the size of the stock of student loan debt and does he or she know if the incomes of the rich are large enough to pay off student loans? A little bit of data helps answer those questions.

The IRS reports income tax data from individual tax returns and the latest data that I found on their web site is for the 2013 tax year. The IRS reports data by income class so I will use tax returns for those having an adjusted gross income (AGI) of $1 million or more. This is a definition of the rich that seems reasonable enough. For these returns, the total reported AGI is $945.8 Billion for 2013. The Federal Reserve Board reports data on the stock of student loan debt in their G.19 statistical release.  For the last quarter of 2013, the Fed reports a stock of student loan debt of $1.14 Trillion. So if we were to take all of the AGI of these so-called rich people, we could not pay off the loans that are outstanding.

Was the student leader aware that paying off student loan debt requires takng all of the income of the rich or, if confronted with the data, would he or she advocate just a healthy increase in the taxes paid by the rich? Would the student know that the rich can escape taxes by leaving the country or by otherwise changing behavior to shelter more income? Would students study less than they do now if they had no “skin” in the game? And, finally, can the student imagine how much more student loan debt would be incurred if we said to potential borrowers that they don’t need to pay it back?

If I were to guess, I would say that the student thought of none of these issues and really does not care.  The only motivation for most advocates seems to be their own immediate gain from a policy they lobby to have implemented. But such a tax increase would sure be good for the businesses of accountants and tax attorneys who could find new ways to shelter income for those paying off the student loan debt. However we can give the student some credit. At least he or she was being honest about what is wanted. Often, people lobby for handouts claiming it is good for society, hiding the fact that they would benefit from the policy change they seek. But there is a larger point here.

How many people lobbying for handouts (economists call this rent-seeking) actually understand the larger consequences of the policies they want? Do those lobbying for the $15 minimum wage know that, based upon the scientific evidence, many of them would lose their jobs or have their hours cut back? I doubt it. Maybe the best advice to offer the student protest leader and other protest leaders is be careful what you wish for.

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Economics One

A blog by John B. Taylor

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One economist's views on economic policy.

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