Senator Elizabeth Warren laid out a new plan last week that would tax millionaires and use that money to help debt-saddled students refinance their loans.
"Do we invest in students or millionaires?" she asked at the Center for American Progress, saying she plans to introduce a bill that would revise the tax code to enact the Buffet rule.
The Buffet rule, named after billionaire Warren Buffet, would tax individuals and businesses that make more than $1 million. The measure, which stalled in Congress, would raise $50 billion in revenue and ensures that millionaires don't pay lower taxes than the middle-class.
Meanwhile, student-loan debt has soared to $1.2 trillion and growing. Warren's plan would allow students to refinance at lower rates, and the cost would be covered "dollar for dollar" by the Buffet rule.
She estimates that new grads who borrowed the maximum in undergraduate loans would have their payments drop by $1,000 a year, and interest over the life of the loan would be almost cut in half. Those with graduate loans and private loans would save even more.
"We take in billions of dollars of profits for student loans, but permit billionaires to have enough loopholes that they pay at tax rates that can be lower than those of their secretaries," said Warren.
"This is a straightforward choice: We can take $75 billion and either way we’ll use it to protect tax loopholes for billionaires or $75 billion can be used to help students to refinance their outstanding student loan debt. It’s billionaires or students."
Critics from Heritage.org, including Curtis Dubay, a senior tax policy analyst, and Rea Hederman, director of the Center for Data Analysis, have questioned the Buffet rule. They note, for example, that families earning above $400,000 already pay an effective rate on all federal taxes of 29 percent. Furthermore, the top 10 percent of income earners pay 70 percent of federal income taxes.
“Implementing the Buffett Rule would raise little revenue compared to the massive spending President Obama wants,” Dubay and Hederman write, "but it would put a severe drag on economic growth and job creation.”
The Heritage Center for Data Analysis estimates that taxpayers with an adjusted gross income between $1 million and $1.5 million would face a tax hit of $67,000 under the Buffet rule.