By E.J. Antoni
President Joe Biden’s student loan “cancellation” scheme is impolitic, unfair, expensive and irresponsible. The price tag will be about a half trillion dollars in 2022 alone. Most of that money will go to upper income households.
Who will pay for it? It will cost the average taxpayer over $2,000, and most of those are people who never went to college, never borrowed money to go to school, or responsibly repaid their loans.
There are other problems as well. The move will fuel inflation and almost certainly encourage universities to hike their prices even higher. (RELATED: CARTER And PIDLUZNY: Student Loan ‘Forgiveness’ — Another Slight To Blue-Collar Workers)
And then there’s the legal question. It is unclear how the executive branch of government can even do this constitutionally. What authority does a president have to unilaterally tear up legally binding financial agreements and then shackle unwilling taxpayers with the fallout?
This latest scheme fits nicely into what has become a distinct pattern in the Biden administration’s policies: transferring wealth from the middle and working classes to the wealthy political donor class.
By spending trillions of dollars it doesn’t have — then borrowing and printing trillions to cover its profligacy — the federal government has unleashed an inflationary tidal wave that has driven up prices and driven down real wages. It is a hidden tax, and just like the president’s student loan bailout, it hurts those with less the most.
People with lower incomes tend to also have lower savings, and their savings are more likely to be liquid cash, like a balance in a savings account. The wealthy’s savings are more likely to be in hard assets like real estate or stocks which appreciate in price during times of inflation. Lower-income earners and those on fixed incomes also tend to have wages or salaries which adjust less frequently than higher income earners.
So, while inflation reduces everyone’s real savings and earnings, this hits lower-income Americans hardest. The administration’s student debt handout will only exacerbate this inequity, since it primarily benefits higher-income households and transfers their debt to lower-income taxpayers already suffering the most from inflation.
But it gets even worse for the middle classes. As food prices have skyrocketed, families have had to shift their purchases. For example, fewer people are buying expensive cuts of steak and instead are buying more ground beef and eggs to save money. That has increased the demand for relatively less expensive food items.
This creates a double whammy for those who were already relying on cheaper food to get by. Not only has inflation made their food more expensive, but inflation has increased the demand for their food too, further increasing the price. Meanwhile, the shift in demand means wealthy have seen their food bills rise less in percentage terms since fewer people can afford filet mignon.
The common man’s situation is no better in the housing market. Home prices, and now interest rates, have risen so high that people cannot save large enough down payments to afford the monthly payments on a mortgage. Homeownership is now 35% less affordable than when Biden took office, effectively creating a permanent renting class and robbing an entire generation of Americans of the dream of home ownership.
Instead of subsidizing hard-working carpenters, welders, factory workers and truck drivers, the administration hands out tax credits for solar panels and electric vehicles which are used by upper income households, not the middle class. Like households earning a quarter million dollars that will now receive $40,000 in student debt “forgiveness,” these manipulations of the tax code benefit the wealthy, while adding to the deficit and debt, which is thrown on the backs of the middle class.
The Biden administration has made a habit of embracing policies that transfer wealth to the political donor class. Perhaps the president has forgotten his working-class origins of which he is so fond of reminding everyone.
E.J. Antoni is a research fellow for regional economics at the Heritage Foundation’s Center for Data Analysis and a Senior Fellow at Committee to Unleash Prosperity.