The WasteWatcher: The Staff Blog of Citizens Against Government Waste

Fiscally Drunk and Disorderly

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


In spite of the decisive drubbing that President Obama and his party sustained in the mid-term elections, he continues to gallop along on his (gift) horse, proposing all kinds of new government spending programs, as if nothing has changed.  His behavior is reminiscent of the over-served guy drowning his sorrows at the local watering hole, running up a big tab on his maxed-out credit card, yelling “another round on me for everybody!” 

The January 21, 2015 State of the Union Address (SOTU) was a litany of giveaways and a bewildering rejection of reality.  The President once again called for tax hikes on the wealthy, $2 billion in new spending to push states to establish paid family and medical leave programs, and money for Environmental Protection Agency waste water management projects, among other goodies.     

One of the centerpieces of the President’s largesse is his proposal to offer free community college to all eligible students.  The plan, which he hawked in a short video, taped on Air Force One two weeks before the SOTU, was reminiscent of one of the late Billy Mays’ and Vince Offer’s respective television infomercial pitches for household cleaning products and the infamous ShamWow, complete with an energetic “that’s right….free!”

The idea is to waive tuition for students who attend community college at least half-time and maintain a 2.5 GPA.  In exchange, federal taxpayers would foot the bill for up to 75 percent of the tuition and state taxpayers would be made to pay the 25 percent balance.  For their part, the community colleges would have to promise students an automatic transfer and college credits to a four-year institution or trade school, but only those that offer degrees in high-demand industries and post high graduation rates.  And the colleges must “adopt promising and evidence-based institutional reforms to improve student outcomes.”

The original announcement from President Obama came with few salient details; some loose cost estimates were coughed up after the fact, under pressure from news outlets, many of which still feel obligated to take the President’s policy pronouncements seriously.  White House officials claimed that the program will cost federal taxpayers $60 billion over 10 years, and another $20 billion in state revenues. 

In order to pay for his new “free” program, the President floated a proposal to enact adverse changes to both 529 prepaid tuition plans and the Coverdell Education Savings accounts, both of which have helped millions of middle-class families save for college.  The popular 529 plans allow taxpayers to make contributions to these investment vehicles with after-tax income, and allow parents to withdraw the money tax-free when it’s time to start paying for tuition, room and board, books, supplies, and equipment. 

If the President’s changes were enacted, the earnings on those contributions would face federal taxation as ordinary income.  A January 22, 2015 Wall Street Journal report states that “the earnings would be taxed as income to the beneficiary—the student.  [White House] Officials pointed out that in most cases students are in lower income brackets than their parents and thus pay a lower tax rate.”

A White House spokesperson told the Journal on January 20, 2015 that “…every dollar saved from consolidating and curbing inefficient education tax breaks–and tens of billions more–is plowed right back into higher-education tax benefits for students and middle-class families (italics added)  The Journal reported on January 21, 2015 that “[a]n administration official said that more than 80 percent of the tax benefits for 529s and Coverdell education savings accounts go to families with incomes over $250,000.”  In other words, “the rich.”

As usual, the White House did not allow the data to get in the way of a preferred narrative.  Immediately after President Obama’s announcement, the College Savings Foundation, a non-profit organization that helps families pay for college, released a breakdown showing that,  in fact, “ten percent of 529 accounts are owned by households with income below $50,000, over 70 percent are owned by households with income below $150,000, and almost 95 percent of 529 accounts are in households with income below $250,000.”  Joe Hurley, founder of Savingforcollege.org, predicted that implementation of the plan would mean that 529 contributions would immediately begin to dry up. 

In President Obama’s skewed world, it is always more efficient to offer big, top-down taxpayer-funded giveaway programs and transfer wealth than to simply give taxpayers the choice and opportunity to save, invest, and fully control their own money. 
Putting aside the fact that the program is essentially dead on arrival in the new Republican-controlled Congress, it is also clear that the plan doesn’t make sense fiscally and builds upon a model of higher education that is already in eclipse.  
The President’s plan is ostensibly based upon a program run by the state of Tennessee, which has a Republican governor.  However, Tennessee’s plan is different in at least one very significant way:  state tax dollars in Tennessee only kick in once the student has exhausted all other available financial aid. 

Governing Magazine reporter Chris Kardish noted, “Some, such as Seton Hall University’s Robert Kelchen, have pointed out that, nationally, some 40 percent of community college students already have their tuition covered by other forms of aid.  A major barrier is living expenses that are hard to cover while attending school.  And in the case of a program like Chicago’s, which requires that students are totally ready for college-level math and English, the vast majority of graduating high school students in the area are likely ineligible.”

Even though few in Washington mention it anymore, including President Obama in his SOTU, the ever-growing national debt stands at $18.1 trillion.

Furthermore, many states are also in a fiscal ditch and don’t have the luxury of unlimited borrowing.  Indeed, states have been looking for ways to winnow their financial obligations to publicly-funded state schools as the proportion of state public higher education revenue that comes from taxpayers has fallen steadily.  According to a December 2014 Government Accountability Office report, “…[S]tate funding for public colleges decreased by 12 percent overall, from $80 billion in fiscal year 2003 to $71 billion in fiscal year 2012.”  Even without the anticipated influx of new community college students drawn by the promise of a “free” community college education, the states can barely handle their current obligations to public colleges and universities. 

As with every single one of Washington’s so-called cost-sharing programs, this one will spawn a new bureaucracy or expand an existing one to promulgate new rules, impose new mandates, and (if taxpayers are lucky) police the new mandates, with new performance measurements and reporting requirements.  These demands will grow, as they always do, and they will not come with more federal money for the states.  President Obama’s proposal is already drawing criticism for accelerating the creeping federalization of state-based higher education; for many, this is just the latest attempt to control everything from Washington.

Many analysts have correctly observed that a new community college subsidy program doesn’t address several core problems facing attendees.  Public two-year community colleges have abysmally poor retention and graduation rates, the credentials of graduates are not always useful in a rapidly evolving workforce and, concomitantly, the unemployment rates for graduates of all higher education institutions remains daunting. 

The National Center for Education Statistics pegs the graduation rate at public two-year institutions at 20 percent, versus 62 percent at private nonprofit two-year institutions, and 63 percent at private for-profit two-year institutions.   Other analysts claim that “More than 60 percent of students who transferred from two‐year schools in the 2005‐2006 academic year obtained degrees at four‐year institutions,” a statistic that doesn’t address what happens to those students who don’t transfer and drop out without an associate degree. 

Right now, regardless of which source is cited, one thing is clear: enrollment in higher education is up, but completion rates for all institutions are dropping and have been for awhile.  President Obama’s new “free community college” project will do nothing to reverse this disturbing trend.         

It also doesn’t help that, for young people between the ages of 16 and 19 years old, the jobless rate in December of 2014 was 16.8 percent; for kids between the ages of 20 and 24, it was 10.8 percent, still almost double the national average.   

In fact, the idea of providing “free” community college is already behind the times.  Technology and the web are transforming the delivery platforms for education at all levels, particularly higher education.  It is no longer necessary to attend a traditional bricks-and-mortar two-year or four-year institution to get excellent training for high-paying careers; private-sector tech companies have already begun offering innovative training alternatives, such as programming bootcamps and paid apprenticeships that feed directly into a pipeline for companies seeking tech-savvy workers for the digital age.

As Michelle R. Weise, a senior research fellow at the Clayton Christensen Institute, which describes itself as a “nonprofit, nonpartisan think tank dedicated to improving the world through disruptive innovation,” observed in a January 12, 2014 Wall Street Journal op-ed:

“Ask Facebook, Google, and AT&T why they’re partnering with Udacity to build programs in Big Data and Data Science and Computer Science.  Ask Infosys why it partnered with Wayne County Community College District in 2012 to build a Software Engineering Boot Camp in Detroit through which plumbers, unemployed auto workers and a casino waitress were able to get the skills to take advantage of opportunities at companies like Compuware, GalaxE.Solutions and Kimberly Group.  Ask Dev Bootcamp and other coding bootcamps why a company like Adobe is recruiting talent directly from them.

“The students emerging from these programs aren’t necessarily earning degrees, but they’re getting jobs….  [C]oding bootcamps, for instance, boast anywhere from 63 percent to 99 percent job attainment rates—stronger than the 57 percent placement rate of law-school graduates, according to the American Bar Association.

“Today, many employers demand more and higher academic credentials because of their dissatisfaction with the quality of degree-holders. ‘Upcredentialing’ is the latest trend, even though most middle-skills jobs don’t require a bachelor’s degree.  The call for more education compensates for the imprecise signaling power of a college degree...

“Given this investment in informal credentialing, how can the country shift the emphasis away from a degree as the sole proxy for talent?  That’s the public-policy question we should be asking.”

The new Congress should step in as a designated driver, force President Obama and his followers to step away from the bar, shut down the tab, call the drunk and disorderly big spenders a cab (better yet, an Uber), and tell them to sober up.        

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