(Part 2) College Costs and Loans: Collectivism

In Part 1, I covered the reasons I disfavor cancelling student debt. The short of it being: college graduates have higher income and are unemployed less often, so they are in the best position to pay their debt, versus shifting the debt to all taxpayers, including the ≈68% of adults who earn less and are unemployed more.

Photo by Katerina Holmes from Pexels

While I am a debt hawk and prefer not to see the government not take on unsustainable debt, I am also a collectivist. I am not a collectivist in the most strict definition. There are times when we act as a collective, and then there are times times when we are individualistic. Social issues are prime time for working together.

K-12 schooling is an example where citizens have collectively agreed there is a need. And if not explicitly agreed, at minimum, there is an acceptance over the last several decades that K-12 is the norm.

How many adults do you know who did not graduate high school?

While the Massachusetts Bay Colony had education laws in the 1640s, it was only by 1920 that all states had compulsory education laws. It took through the 1930s to effectively enforce the laws. If you were born post 1950, you likely assume everyone has a high school diploma.

Source, National Center for Education Statistics (1910–1930 data, 1940–2020 data)

After making K-12 compulsory, high school completion rates more than doubled between 1920 and 1940; and then doubled again from 1940 to 1970.

As more people complete high school, more people attend college. Not just in raw numbers, but as a percentage of cohorts.

Pew Research, Millennial Life

Without getting into the eco-ethics of this, society is benefiting from a better educated workforce. Solar, automotive, computer science, farming, and biomedical, to name a few fields, are all adding value.

I am not suggesting that college becomes compulsory. It is one choice amongst other options exiting high schoolers have (e.g., direct to workforce, trade/vocational schools, military).

College, though, is a very popular choice: the US Bureau of Labor Statistics estimates that 66% of 2019 high school graduate went on to a 2-year or 4-year college.

Who Should Pay

Society is benefiting from a better educated workforce. Since everyone benefits, we should ease the cost similar to how costs for K-12 were eased.

Some call for the government funding the entirety of college costs, but per Part 1, that moves the cost to all taxpayers including those who earn ≈40% less than college graduates. The government does not have the money to fund college, and the only way for the government to have the money is via taxes.

Some call for taxing the wealthy for education costs. While the inequity of wealth is stunning, the complications of a wealth tax is not resolved. (e.g., Are family foundations included? Are non-revocable trusts included? What is the fair market value of art? Will charity grants drop due to higher personal taxes? Are off-shore assets that increase in value included?) There are other ways to tax the wealthy that are less complex (I am poorly foreshadowing a future post on this topic).

Who should pay? Large Corporations

Large Corporation

My recommendation is to establish a post-high school Education Allotment which is transferrable to other eligible people, and is funded by the taxpaying class who profits the most: large corporations.

Let’s define Large Corporation.

I am defining a Large Corporation by Gross Revenue. Simplistically, companies would pay 1% of Gross Revenue when their total is $1B globally, but the 1% is only applied to their US Gross Revenue (akin to the “territorial” taxation change made in December 2017).

Total Global Revenue triggers the tax, but the tax is only on the US portion, and it is taxed upfront (before any deductions, and deductions do not apply to the education tax).

(Those of you who are accountants can clearly see that I am not an accountant. The specifics of this need to be detailed, as with all other parts of the proposal.)

The proposal is that the 1% tax is held separately for an Education Allotment.

Benefits to the Large Corporation

Large Corporations benefit directly and indirectly from an educated workforce.

That is not to say that they only hire college graduates, certainly they do not. Also, that is not to say that smaller corporations (or entities) do not hire college graduates, certainly they do. There are even those people with a college degree not utilizing it (e.g., working in a position that does not require a degree). And there are those people who do not have a college degree but working in a position that would typically demand it.

So why Large Corporations?

In the last ≈50 years, the number of business degrees (business, management, marketing, et cetera) has grown the most by the raw quantity of degrees. Roughly 115K degrees conferred in 1970–1971, and 390K conferred in 2018–2019.

Computer and Information Sciences (CIS) has grown the quickest year-over-year. From ≈2.5K degrees conferred nearly 50 years ago, to ≈88K in 2018–2019, which is 7.82% compounded annual growth.

Bachelor’s degrees conferred

Indirect Benefits to Large Corporations

Large Corporations benefit across the board with college hires. Outside of their own business, they need teachers to educate future workers. They need buildings architected by educated people.

They also need their suppliers to work well. Specifically, they need suppliers to not be vulnerable to ransomware hacks. A supplier could be a utility company (e.g., gas, electric, sewage). It could be a shipping company (e.g., ground, air, ship). It could be a parts or raw material supplier (e.g., a chip manufacturer, cotton distributor).

Even if the company has contingency plans for the company, that does not necessarily extend to employees. As an example:

A large retail shop akin to Target or Wal-Mart is in a location where the electric company can no supply power to your store due to a ransonmware hack. The store has a contingency plan, in that it can switch to on-site generators. That does not help the employees of the stores (or even the customers) who now have added stress of an electric outage at home. It would be best to have a workforce at the electric company who are educated in such a way to prevent the outage. Everybody wins.

If you want your company to succeed, you need your business partners to succeed. If you want your company to succeed, you need your employees to succeed.

What are the numbers? These are estimates, as refined data is not available.

Per Fortune Magazine, the top 1000 publicly traded US Companies yielded $15.9T in revenue in 2020. Each of the companies listed had a minimum of $1.9B global revenue. This list does not include private companies, nor does it list all publicly traded companies with revenue greater than $1B. Meaning, this is not comprehensive list of impacted companies; it is an easily available list which acts as a starting point.

It is important to understand the narrative more than the numbers. The narrative is: companies benefit the most by having a well educated workforce, and large companies are better suited to help offset the cost of a college education. The numbers need to be worked out in detail.

The numbers are speculative, as not all of the numbers are easily available. (e.g., I am omitting possibly taxing foreign companies’ US-based revenue. This would add to the numbers.)

Total revenues of US based companies earning > $1B estimated to be $18T, as a starting point. My assumption on the percentage that is US “territorial” earnings is 40%. And then 1% of tax from that.

$18T * 40% * 1% = $72B

Education Allotment

(For demographic data on population ages, I am using the 2020 Demographic Analysis Estimates available from the US Census Bureau. I am using the high estimate.)

An Education Allotment is a per person budget available for post high school education. To be refined, but this could be college or trade school. The major consideration is accreditation (national or regional).

The Education Allotment would start at $5,000 per person, and would step up in predetermined years and predetermined amounts. It is tax free when used toward education or education loan. It is transferrable within guidelines.

This is not an attempt to fund someone’s complete education. However, there is a mechanism where that is feasible (i.e., transferring an allotment).

The purpose is to reduce the costs to for a post-high school education while opening the opportunity to more people by virtue of lowering their direct cost.

$72B (from above) with an Education Allotment of $5,000 per person would cover 14.4M people per year. The US Census shows an average of 4.1M people born each year over the last two decades.

Reversing that, 4.1M people at $5K per = $20.5B needed per year. Where does the extra $50B go?

This is not a proposal to cover people only those born in the future, but to cover the existing population pool. That works out to a need of closer to $1.675T (≈335M existing population * $5K per)

Not everyone today is in college or has a student loan, which is why the Education Allotment would be transferrable to others.

How this could play out is in Part 3, an FAQ style outline.

(Jump to Part 0, Summary.)

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