Nothing's free

You aren't going to get free community college. Someone has to pay for it. And that someone is you:

Earlier in the week, I discussed the Obama administration's proposal to tax earnings on so-called 529 college savings plans, part of a package of tax hikes that will pay for new programs such as his proposal to make the first two years of community college free. This has been touted as a plan to hike taxes on the rich to help the middle class, but in fact it's more of a plan to redistribute money from the upper middle class to the lower middle class.

As Megan McCardle rightly points out, the proposal isn't going anywhere because it's going to hurt the people it's supposed to help. But the larger issue is what it really signals:

Why target a tax benefit that goes to a lot of your supporters (and donors), that tickles one of the sweetest spots in American politics (subsidizing higher education), and that will hit a lot of people who make less than the $250,000 a year that has become the administration's de facto definition of "rich"?

Presumably, because you're running out of other places to get the money. The top tax rate on people who make more than $413,000 ($464,000 for married couples) is already almost 40 percent. That's on top of Medicare taxes (2.9 percent, not capped), Social Security taxes, state and local taxes (in a deep blue area like New York City, these can amount to 10 percent, though you get some of that back by deducting state taxes from your federal tax) -- a marginal tax rate of around 45 to 50 percent in blue states, and possibly even more if you run a business.

Capital gains are taxed at a lower rate, of course. But if you combine the Obamacare capital income surcharge for higher earners, and the administration's new proposal to raise the base rate to 28 percent, you're looking at a capital gains tax of almost 32 percent for people who make more than $200,000 a year ($250,000 for married couples). We are simply running out of room to pay for generous new programs with higher taxes on the small handful of people who make many hundreds of thousands of dollars a year. I'm not saying that it's impossible, politically or otherwise, to further raise their tax rates. I'm just saying that there's not all that much money there left to get. 

McArdle is right.There simply aren't enough people who make that kind of money around to tax. So that leaves you. If you have a 529, Obama is coming. If you have a Roth IRA, he's not coming yet, but he will be.

One other thing -- if you're running a small college with a modest endowment, I wonder how the economic model works if suddenly your applicant pool isn't planning to spend four years with you, because they already have two years of "free" community college. Do you suppose those credits are gonna transfer?