Free Community College – But, Is it Really Free?

The President has been touting his idea of two years of free community college tuition for students who attend school at least half-time, who maintain a 2.5 GPA (C+), and who make satisfactory progress in their program of study.  Community colleges for their part would be required to have courses that can be transferred to four year colleges or to other programs related to a potential occupation.  It’s called America’s College Promise.  But, is this free community college tuition program really free?  Or, are Americans actually going to pick up the costs in some other ways?  Let’s take a closer look at the President’s “free” community college tuition program right now …

First Why Do Progressive Socialists Seek Free Community College for Everyone?

For starters, it’s another entitlement program.  They think it will be popular.  Why would anyone want to turn down something “free” from the government?

Free Community College is also part of the progressive socialist’s dream of cradle-to-grave social programs run by big government.

Indeed, they think it will give big government more control over our lives.  After all, many progressive socialists, socialists, Marxists, and others think big government and the elite who run big government, should control the lives of citizens because citizens can’t do it for themselves.  Remember the well publicized comments about ObamaCare and the stupidity of the American voter.

The famous Nobel Prize winning economist, F. A. Hayek, called out socialists for their “fatal conceit.”  They think they have the right answers for everyone and should impose it on others.  And, of course, citizens need to have their freedom curtailed since they are too stupid to use their freedom wisely.

What will Free Community College Cost America?

The estimate for this new entitlement is about $80 Billion over ten years.  Note that entitlement cost estimates can be quite a bit off (on the low side).  The costs would be split with the Federal government providing $60 Billion and the States kicking in the other $20 Billion.

So, it’s really not “free.”  It’s an $80 Billion entitlement program that will most likely be paid from more taxes, or from deficit spending (passing on the debt to our children and grandchildren), or from future inflation that devalues our dollar.  It looks like the administration is choosing option #1 for now – namely, more taxes.

How Will America Pay for Free Community College?  Increase Taxes on 529 Education Savings Accounts

According to the College Savings Plan Network referenced by The Wall Street Journal, there are currently about 12 million 529 accounts with an average balance of $21,000.  This turns out to be enough to cover what student’s room and board, as well as tuition, costs at a four year public university, assuming the student receives some financial aid.

Today, parents save for their children’s education by putting non-deductible contributions into a 529 account and allowing the earnings to grow tax free.  When withdrawn, earnings are not taxed if used for qualified educational expenses.  Qualified expenses include such things as room, board, tuition, books, supplies, equipment, etc. for minimum half-time students.  Withdrawals associated with non-qualified earnings are taxed and are subject to a 10% penalty.

Enter the President’s proposed tax hike.  Earnings will be taxed.  Hence, the loss of an important tax break for families saving for college.

How Will America Pay for Free Community College?  Increase State Taxes (or Shift State Budgets Away from Other Priorities)

Part of the President’s plan calls for States to pick up about $20 Billion of costs.  How will they pay for it?  States can increase taxes or re-arrange State priorities and defund other current activities.  Neither is probably a desirable option.  Increased State taxes will likely be borne in part by middle class families hoping to send their kids to college.

How Will America Pay for Free Community College?  Increase Capital Gains Taxes

The President proposed a $320 Billion tax increase that includes raising the capital gains tax rate to 28% and then also including “inherited assets” in the capital gains tax bucket.  As you might expect, increasing the marginal capital gains tax rate is detrimental to the economy and economic growth.  Expect retarded GDP and increased unemployment as a result.

For More Information

For more information on progressive socialism and/or taxes, please read my most recent book Renewing America and Its Heritage of Freedom: What Freedom-Loving Americans Can Do to Help that covers economic freedom, economic growth, pro-growth economic policies, and related topics.  It provides a plan for America to restore our economic vitality and our economic growth.  It’s available in both print and Kindle editions.

You can also find more information on my website.  You can link to my website using either: RenewingAmericaBook.com or GerardLameiro.com .

Update to Blog Post

On Tuesday, January 27th, 2015, Newsmax reported that The White House announced that the proposal to scale back tax benefits on 529’s is being dropped due to pressure from both parties.

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