Forgiving Student Loans Is a Regressive, Sorry Excuse for Economic Stimulus

While we are climbing out of this recession at a quicker rate than was initially projected, we still have a ways to go before we experience an economic recovery. In response, President-Elect Joe Biden and a number of prominent Democratic politicians have proposed cancelling some or all of student debt. The latest argument from proponents of student loan cancellation is that it would help provide economic relief to those who hold student debt. 

The first problem with using student debt cancellation as an economic stimulus is the regressive nature of the policy. As the Left-leaning Urban Institute points out, those who are most likely to own education debt are higher-income households. The Left-leaning People's Policy Project also found that the top quintile holds $3 in student debt for every $1 that the lowest quintile holds. 

Survey data from Pew Research shows that those who are struggling with employment as a result of the recession are the ones that are least likely to have student loans. As data from the centrist Brookings Institution show, nearly three-quarters of student loan payments are made by those in the top two quintiles. This further illustrates that those who are most likely to have student loans are most likely to pay back the loans (more on that momentarily). In its July 2020 analysis, the Urban Institute also found that student loan forgiveness "would direct the most benefits to higher-income households."

Second, student loan forgiveness would not really contribute to the economy. The bipartisan Committee for a Responsible Federal Budget [CRFB] calculated that the multiplier (or to put the macroeconomics in layman's terms, the "bang for your buck") is 0.08-0.23, which is much lower than other forms of economic relief implemented in this pandemic (see below). If all of the $1.5 trillion were cancelled, it would mean $90 billion or less in cash available. Why? It would relieve them of the monthly payment, as opposed to giving someone a lump sum amount of cash. Since the typical monthly loan payment is $200-300 (Federal Reserve), it would provide little spendable cash. 

Aside from not providing a real boost to the economy, here are some other issues to take with student loan forgiveness:

1. Three quarters of Americans do not hold a Bachelor's degree. Is it fair to ask someone who has not acquired that level of education to pay for someone who did? Is it fair to those who either avoided debt or paid off debt? This proposal is more unfair considering that those with a Bachelor's degree earn an extra $400,000 in lifetime earnings in comparison to those with only a high school degree (College Board). 
2. As I brought up in my analysis on student loan forgiveness last year, those who are most likely to have difficulties with paying student loans are not necessarily the ones with the largest loans. Those who most likely default are those who drop out and struggle to find a job to pay off the debt (see 2015 article from New York Times here). 
3. Student loan forgiveness misdiagnoses the problem. The single largest factor that has driven up college tuition has been federal subsidies of student loans. The Federal Reserve of New York found that for every dollar in federal subsidies, tuition increased by 60 cents (Lucca et al., 2017). A study from Harvard University concluded that higher education programs receiving federal aid experienced higher tuition hikes than those who did not (Cellini and Goldin, 2012). And here is a Mercatus Center study highlighting the research showing how federal subsidies have exacerbated tuition prices.
4. This would set a bad precedent, which is also known as moral hazard. If current borrowers get their loans cancelled, why wouldn't future borrowers ask for a loan cancellation? This would only serve to jack up tuition prices.
5. According to Federal Reserve Bank of New York labor market data, 33 percent of those with a Bachelor's degree work in jobs not requiring a Bachelor's degree (43.2 percent for recent graduates). How does forgiving student loans solve this issue?

In short, student loan forgiveness is regressive, inequitable, and a poorly targeted form of economic stimulus. I hope that the upcoming Congress does not perform the folly of forgiving these loans.

7 Reasons Why Deutsche Bank's Remote Work Tax Proposal Makes No Sense

As a libertarian, I have spent a fair amount of time criticizing and scrutinizing bad ideas that come from politicians and other government officials in the hopes of "making government great again." From time to time, these bad ideas come from the private sector. Enter Deutsche Bank. Last week, the multinational investment bank Deutsche Bank released a research brief called What We Must Do to Rebuild. Within this brief was a proposal for a five-percent work-from-home tax. 

Why is Deutsche Bank so eager to implement a tax on those who work remotely? From Deutsche Bank's view, working remotely is a privilege. Those who work remotely are less likely to contract COVID-19, either on their commute or in their place of employment. Part of the idea is to subsidize lower-income workers who are unable to work from home. Pandemic notwithstanding, working from home saves on such expenses as commute, lunch, work clothes, and dry cleaning. This would also imply that those who performed the related services are either out of a job or have reduced hours. Because of these benefits, Deutsche Bank argues that there should be a five-percent tax on income for each day worked at home. Deutsche Bank estimates $49 billion in annual tax revenue as a result of this tax. 

This is might sound nice and dandy, but here are some issues to take with the proposal (aside from the fact that Deutsche Bank has a lot of commercial real estate holdings and remote work would affect their bottom line):

1) Enforcement and Tracking Costs. According to Deutsche Bank's own survey data (p. 33), 96 percent of workers are not going to be working remotely every day post-pandemic. Since most people would not work remotely all the time, this means that the tax would most probably be charged on a pro rata basis. HR departments would have to track when employees are in the office and when they are not for tax purposes. Additionally, they would need to distinguish when they are working remotely and when they are out of the office for something such as a business trip or an on-site visit. As the Tax Foundation points out, this complicates matters for those with performance- or project-based elements to their compensation package. 

2) More complicated tax code. These complications are not only an issue for those collecting the labor data. It would make tax collection and enforcement more complicated, which could lead to greater tax fraud and evasion. If there really is a correlation between income bracket and remote working, you could simply alter current income tax rates to compensate or make similar adjustments to the current tax code. 

3) We already have a tax system to help the poor. Our taxation system is a progressive one, which means that it is designed to help the poor. More to the point, we already have general taxes that are used or could be used to fund welfare benefits or wage supplements to deal with the short-term labor displacement. 

4) Would it really help the poor? If the wealth transfer translates into a $1,500 a month check for lower-income workers, it would be likely that employers would adjust by offering lower wages. After all, we see such behavior in minimum wage, payroll taxes, or other labor laws in which the tax incidence ultimately falls on the worker. In net, the effect for low-wage workers might not be that much. 

5) Does working from home really mean less spending? One of the concerns of the Deutsche Bank is that people will spend less because they are working home. First of all, if that is the case, what is the issue with increased savings, especially in a society that had a lower savings rate pre-pandemic (Federal Reserve)? Also, it is perfectly reasonable to assume that the demand is allocative, which is to say that people could simply spend their disposable income elsewhere.   

6) Labor rigidities and assessing costs of remote working. Much like everything else, there are costs and benefits to everything. The Deutsche Bank report seems to be dismissive by asserting that the costs are low. Aside from dealing with potential child care, here are a few: paying for one's remote work setting, increased utility bills, having to be one's own computer technician, increased social isolation, and smaller likelihood of having one's work noticed for promotional potential. As Deutsche Bank survey data showed (see above), most will not work remotely completely, assumedly to balance the pros and cons of remote working. Instead of using the tax code to incentivize a one-size-fits-all solution, employees and employers should have the ability to determine how much they work from home based on their circumstances.

7) Why disincentivize remote work? Generally speaking, taxation has two general purposes. One is to collect revenue. The second is to disincentivize behavior. In this case, the behavior that is being disincentivized is remote working. Remote working is not hurting society or even the government. The tax de facto acts as a punishment on remote working, a trend that has been taking place within the past decade and was accelerated as a result of the pandemic. This makes even less sense when considering that productivity and job satisfaction have overall increased as a result of increased remote work. There is no compelling reason to incentivize people to work in brick-and-mortar establishments. 

A remote work tax is similar to proposing a tax on people who recycle or decide to life healthily. If anything, there is a stronger argument for subsidizing it (not that I am in favor of this proposal per se) since less commuting would be better for the environment. There is a reason why there is no wide public interest in a remote work tax: a remote work tax truly is a solution in search of a problem.  

Why More States Should Legalize Sports Betting: A Look at Maryland and South Dakota Ballot Initiatives

With a pandemic, recession, social unrest, and a presidential election dominating the news cycle, you would think there would be little room for much else. And yet, there is some space for sports betting. As of August 2020, 19 states have legalized sports betting since the Supreme Court ruled that sports betting should not be under the purview of the federal government (Murphy v. NCAA, 2018). This Tuesday, there are two states that are voting on ballot initiatives to be added to the list of states that legalize sports betting: Maryland and South Dakota. South Dakota is deciding whether to allow for sports betting within the limits of the town of Deadwood, which houses a casino and is near Mount Rushmore. The net municipal proceeds would go to the Deadwood Historic Restoration and Preservation Fund. In Maryland, the state revenue funds generated are intended to go to fund public education. In both cases, the ballot initiatives bring up the question of whether we should legalize sports betting. 

Revenue and Jobs Generation: One of the obvious benefits is the money that sports betting generates. In May 2017, Oxford Economics released a report saying that legalizing sports betting in the United States would add anywhere between $11.6 billion and $14.2 billion to the United States GDP. Oxford Economics also found that it could generate 86,819 jobs directly, as well 129,852 indirect jobs. Keep in mind that would be the case if the entire country legalized sports betting. The state of Maryland's legislative analyst estimated that a 20 percent table games tax rate would translate into $18.2 million of tax revenue for the state of Maryland. While there is greater economic potential in the private sector, the Tax Policy Center warns of the limits of counting on sports betting being a cash-cow, especially given how sports betting operates and is taxed (Auxier, 2019).

Issues of Underground Markets and Exploitation: Whether it has been marijuana, prostitution, or human organ sales, there is a major concern of what happens when you drive something to the underground market. For one, the legal economy is deprived of the revenue generated from that commerce. This is important, especially considering that sports betting is a $155 billion market [in 2017 dollars], 97 percent of which was generated illegally in underground markets, as of 2017 (Reason Foundation). It is clear that sports betting, regardless of its legal status, is a desired trade. Second, underground markets lead to abuse of power and empower criminals. We see this when pimps abuse their prostitutes, drug lords are able to carry out unspeakable acts, or when a dysfunctional immigration that keeps workers undocumented, which not only keeps their potential in the labor down, but also leaves them open to exploitation in the workplace. In the case of sports betting, keeping sports betting illegal empowers bookies. Keeping sports betting illegal drives people into the arms of the criminal underworld. 

Is Gambling Addiction a Concern with Legalization?: This is one of the main concerns of those who are against sports betting. Their theory is that if we legalize sports betting, this will increasing the amount of gambling addiction. A 2016 study from the National Institutes from Health sheds some light on the matter (Welte et al., 2016). The NIH study looks to see if an increased amount of gambling legalization and availability of gambling options increased the rates of gambling addiction and problem gambling. Interestingly enough, these rates remained stable with increased legalization. The best explanation for that is because the ubiquitous nature of the black market makes gambling easily accessible. This is yet another reason to legalize. Instead of stigmatizing gambling addictions related to sports betting, legalization would bring it to light in a way that would help those who need it. Making sports betting doesn't make the gambling problems go away. It sweeps them under the rug while adding on other problems that come with the underground markets. 

Conclusion: It makes very little to no sense to keep sports betting illegal. As has already been proven, people will find a way to partake if they want, whether it is by going underground or crossing state lines to a place where it is already legal. Legalizing sports betting is shown not to increase gambling rates, and keeping it illegal is not shown to make gambling addiction go away. Even better, legalizing sports betting does not make game fixing more likely (Morris and Bentley, 2017). Legalizing sports betting helps to keep power away from those operating activities while generating revenue for both the government and the economy at large. If you live in Maryland or South Dakota, please vote "yes" to legalize sports betting.