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The Democratic free-for-all
There is a growing rift in the Democratic primary over the issue of free public college. There is a consensus that some kind of free public college program would help level the economic playing field, making higher education more attainable and freeing young people from crippling debt.
South Bend Mayor Pete Buttigieg, who is surging in polls in Iowa and nationally, proposes offering free tuition at public colleges to children in families with incomes below $100,000. Buttigieg is also criticizing plans by Senators Bernie Sanders and Elizabeth Warren that would make tuition at public colleges free for everyone, regardless of income.
Lis Smith, a top aide to Buttigieg, articulated this critique, arguing that Sanders and Warren's plans would force workers to pay for the tuition of "millionaires and billionaires."
Smith's argument has some inherent appeal. If public benefits are targeted at the population that needs them most, Buttigieg argues, the government can do more with less. In a new ad, Buttigieg says Sanders and Warren's plans are a giveaway to the rich and would turn off "half the country before we even get into office."
But the argument on how to most effectively structure public benefits did not start in 2019. We have concrete examples of public benefits in the United States that are means-tested, and those that are offered universally.
There has also been a rigorous academic debate on the topic. In 1992, Amartya Sen, winner of the Nobel Prize, wrote a seminal paper on means-testing called "The Political Economy of Targeting." While mean-testing makes for compelling soundbites, Sen lays out the problems with targeting public benefits and the advantages of universality.
The primary argument advanced by critics of a universal public college benefit is the cost. Why should the working class pay for the college of "millionaires and billionaires." The actual savings from excluding millionaires and billionaires from a universal public college benefit is quite small. Mike Konczal estimates that the children of the very wealthy would comprise just "1.4 percent of the total spending of free public higher education." This is because the total number of children in this category is relatively small, and many of them will choose to attend elite private institutions.
Billionaires, in particular, are extremely unlikely to take advantage of free public college. There are only 600 billionaires in the United States. And the savings for billionaires from free public college, about $25,000, is equivalent to the cost of a movie ticket for the average American.
But excluding millionaires and billionaires would not actually save even 1.4% of the total costs. Sen explains that, while universal programs are easy to administer, means-tested programs require "substantial administrative costs." It also subjects potential recipients to "losses of individual privacy and autonomy" because of "extensive disclosures" required to prove eligibility. Often, these procedures amount to "treating each applicant as a potential criminal."
It's also not true that whatever benefits the wealthy do derive from a universal program would have to be paid for by the working class. Under a progressive system of taxation, the wealthy pay more in taxes than they receive in public benefits. The Trump administration cut taxes for the wealthy and corporations, but there is no reason that this couldn't be adjusted to support a universal public college benefit. Warren's proposal, for example, is paid for exclusively by her proposal to tax the wealth of ultra-millionaires.
When you means-test a benefit like free public college, Sen argues, you provide incentives for families to cheat. Families with incomes above $100,000 could receive the public benefit if they were able to conceal a portion of its income. This creates a system that rewards deception and punishes honesty.
It also creates a problem with enforcement. If you impose strict requirements to crack down on cheaters, you will "make mistakes, leave out some bona fide cases, and discourage some who do qualify from applying for the benefits to which they are entitled."
A means-tested public benefit also creates undesirable economic distortions. A wage-earner in a family earning $85,000 per year, may not want to pursue a promotion that would raise the family's income to over $100,000 and put access to free public college at risk.
It's theoretically possible to reduce this distortion by providing a phase-out of the subsidy, but it's not possible to eliminate it. And a complex phase-out formula may be difficult to understand and not change the decision-making of families near the cutoff.
Means-tested programs carry a stigma, and universal programs do not. Consider the public perception of welfare versus that of social security. Welfare, which is means-tested, is viewed by many as a giveaway to people who are lazy. Social security, which is universal, is a beloved program that is viewed as creating economic stability for all older Americans.
Means-testing also impacts the perceptions of people who benefit from the program. "Any system of subsidy that requires people to be identified as poor and that is seen as a special benefaction for those who cannot fend for themselves would tend to have some effects on their self-respect as well as on the respect accorded them by others," Sen notes.
Moreover, the beneficiaries of means-tested programs "are often quite weak politically and may lack the clout to sustain the programs and maintain the quality of the services offered." That's why "[b]enefits meant exclusively for the poor often end up being poor benefits."
Let's get meta
Buttigieg's plan is less about saving money and being practical and more about sending a message to voters that he is moderate and practical. Afterall, Buttigieg's base of support is upper-middle-class voters -- people who earn more than $100,000 per year but are not millionaires. His means-tested program would specifically exclude this group.
It's hard to believe Buttigieg's supporters prefer a program that specifically excludes them. But that is likely the case because they believe it makes Buttigieg more electable. The core point of Buttigieg's ad is not that his education program is better, but that Warren and Sanders are too radical to be elected.
Pursuing a more moderate policy platform overall, Buttigieg makes himself more attractive to large donors. These donations have financed a wave of advertisements that, along with his considerable political talents, have helped fuel his rise in the polls.
Will it be enough for Buttigieg to capture the Democratic nomination? We'll find out in a few months.
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