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The Student Debt Time Bomb

There’s a generational time bomb ticking — and the student debt crisis is the trip wire.

Adults under 35 disproportionately bear the brunt of escalating inequality.

America’s educated youth are graduating into an economy with stagnant wages and a torn safety net. Federal and state budget cuts, meanwhile, have spiked tuition costs and cut public services that aid young workers, such as transportation and affordable housing.

A rumble of legitimate discontent is mounting from the 40 million Americans saddled with student debt totaling $1.16 trillion — a number expected to increase to $2 trillion by 2022. College debt now touches 1 in 5 U.S. households and exceeds total credit card indebtedness.

The most frustrated students are blocking highways over tuition hikes. Others are launching “debt strikes” by refusing to pay the for-profit schools that bilked them.

Many more are defaulting after facing the stressful realization that they can’t find a job that pays enough to repay their debt. Over half of outstanding student loans are presently in deferral, delinquency, or default.

The student debt debacle has huge implications for the future. The average college graduate is now almost $30,000 underwater, with some on the hook for over $100,000.

This debt keeps young people from starting families, buying houses, and taking risks on new businesses. It also exacerbates the growing problem of wealth inequality and declining social mobility, since it gives debt-free graduates from wealthier families an enormous head start over their peers.

Many Baby Boomers without kids in college don’t fully appreciate how the economy is tilted against the rising generation — or how much higher-education financing has changed from previous generations.

Since the 1970s, tuition rates have risen over 1,000 percent, while state funding of universities has declined by 40 percent. And the proportion of young Americans with education debt more than quadrupled, from 5 percent to 22 percent.

The powerful student loan industry lobbied for — and got — draconian laws that penalize student debtors more than people holding mortgages, car loans, or credit cards. Servicers can garnish young graduates’ wages and disability payments to get their due.

And not even bankruptcy can cancel out these loans.

In some states, student debtors who fall into default can lose their professional certifications and even their driver’s licenses. Imagine borrowing money to get a nursing or cosmetology degree, falling behind in your payments, and having your source of livelihood revoked.

It doesn’t have to be this way. Other countries have offered free public higher education for decades.

In the 30 years after World War II, the government expanded access to debt-free college for millions of Americans. These included GI Bill recipients, but also millions of men and women without military service records who attended the great public universities of our land, paying a tuition bill they could afford with only a summer job.

Lawmakers should reverse the cycle of state budget cuts in higher education that shift tuition costs onto students and their cash-strapped families. Some states are considering creating “opportunity trust funds,” capitalized by state estate taxes on the richest 1 percent, to finance debt-free public education.

The national Strike Debt movement calls on Congress to spend an additional $15 billion a year to make public education free. They could accomplish this by cutting out for-profit colleges and the parasitic college loan industry, and by simplifying the existing labyrinth of education subsidies.

The vast majority of college debtors still suffer in isolation, viewing their struggle as a personal problem, not a societal issue. But this is about to change. When college debt borrowers wake up and flex their political muscles, they’ll be a force to be reckoned with.

Photo: thisisbossi via Flickr

Congress Should Reinforce The Inheritance Tax, Not Scrap It

Real wages have stagnated for decades. Home ownership rates are down. College debt is weighing down young people entering the workforce. Millions of low-wage workers eke out a living on a minimum wage of $7.25 an hour.

As the American Dream slips away for millions of people in this country, one faction of Congress is doing its best to aid a select group of folks that least needs a helping hand: trust fund babies.

More than 222 House members — nearly all of them Republicans — have co-sponsored legislation to abolish America’s inheritance tax, a levy that only applies to the estates of multi-millionaires and billionaires.

Technically called the estate tax, and derided by its opponents as the “death tax,” this part of the tax code affects only 1 out of every 500 Americans.

If Congress abolishes it, the already wealthy will gain the privilege of passing unlimited inheritances to their children once they die. Scrapping it would rip a $210 billion hole in the federal budget over the next decade, according to the Tax Policy Center.

The lawmakers determined to kill the inheritance tax go out of their way to hide the facts and pose as populists.

Take Representative Kevin Brady, a Texas Republican and lead sponsor of repeal legislation. He circulates advertisements with two young farm kids next to a pickup trick with the caption, “The Death Tax crushes family farms, ranches and businesses.”

And a Kentucky PAC spent $1.8 million airing a TV ad featuring a farmer who bemoans the burden of the inheritance tax and praises Senate Minority Leader Mitch McConnell (the farmer, John Mahan of Lexington, did not complain about the $405,692 in federal farm subsidies he received between 1995 and 2012).

The inheritance tax “continues to be the number-one reason family-owned farms and businesses aren’t passed down to the next generation,” Brady recently (and wrongly) claimed.

It’s hard to fathom how a tax that 99.8 percent of households don’t pay could be a bigger threat to farmers than volatile farm prices and competition from corporate agribusiness. But don’t bank on opponents of the inheritance tax letting the facts muddle their political agenda.

As a strong supporter of the inheritance tax, I’ve seen this playbook before. Between 1996 and 2004, America’s plutocrats, including the Walton and Mars families, invested millions in a propaganda campaign designed to save themselves billions.

They plastered the media with images of farm families, alleging that the inheritance tax would be the “death of the family farm.” The only problem was, when pressed by Pulitzer Prize-winning reporter David Cay Johnston, foes of the estate tax couldn’t produce a single example of an actual farm lost because of the inheritance tax. It was a complete myth.

Congress wound up weakening the tax in 2001, when opponents failed to abolish it. Now this tired debate is back, with those phony farm images and fake populism.

Here’s what really matters: Couples with less than $10.6 million in wealth are exempt from the inheritance tax. So are individuals with wealth under $5.3 million.

The inheritance tax is important because the very richest Americans already benefit from enormous loopholes that enable them to pay taxes at rates lower than average workers. The inheritance tax levels the playing field.

And the huge family fortunes now being passed onto the next generation are creating a new wave of American aristocrats.

Who are the real faces of the inheritance tax? Try the sons and daughters of the billionaires who make the Forbes 400 list, standing next to their family limousines.

There is a real problem with the inheritance tax: Billionaires are paying expensive lawyers to weasel out of paying it. Casino mogul Sheldon Adelson, for example, used a system of trusts to funnel $8 billion in wealth to his heirs. This maneuver let his family dodge about $2.8 billion in estate taxes that would be due after his death.

Instead of abolishing the inheritance tax, lawmakers should focus on closing the loopholes that empower the richest Americans to legally dodge it.

Chuck Collins is a senior scholar at the Institute for Policy Studies and co-editor of www.inequality.org. He is co-author, with Bill Gates Sr., of Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes

Cross-posted from Other Words

Photo: Ervins Strauhmanis via Flickr

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