I haven’t annoyed my Republican friends for some time, and I’ve been kicking my Democratic friends in the shins, so it’s time to restore a little balance. President Obama’s Community College idea is a good one, and it should be supported. And even Prof. Milton Friedman (might) say it’s a good idea. Here’s why.
Here’s why. Friedman proposed a college financing proposal in which a student sold equity in himself to the government. It’s summarized here, but the net is really simple: the student gets a grant to attend school, and in return promises to pay a proportion of his income to the government. In effect, he’s sold stock in himself to the government.
Great idea. But we already have such a program. It’s called the income tax.
Now, I am not a huge fan of the income tax. It’s basically a tax on work, saving, and investment, and if you tax anything you get less of it. That’s why we have sin taxes on booze and cigarettes; we’re trying to discourage their consumption. I don’t like the income tax because I don’t want to discourage work, saving, and investment. But that said, we have it, and it’s not going away anytime soon. If you net it out, community college graduates earn about 1/3 more than high school graduates. About 20% of that accrues to government through taxes. That pays for the cost of college, many times over, and is thus an exceedingly good fiscal bet. In effect, the income tax acts as Prof. Friedman’s equity collector — with zero transactions costs.