Bernie Sanders says Wall Street tax would pay for his free tuition plan

One proposal boosting Democratic presidential candidate Sen. Bernie Sanders’ support among college-aged voters is his promise of free tuition at public colleges and universities.

In an interview with Sanders, CNN’s Erin Burnett asked about some of the issues Sanders’ critics bring up about the proposal, like the large cost of such a program and persuading states to get on board.

But Sanders said he has a way to pay for it: Wall Street.

"I think the idea is sound," Sanders said in the March 30 interview. "It is paid for, Erin, by a tax on Wall Street's speculation. When Wall Street's illegal behavior destroyed our economy, the middle class bailed them out. It is now time for them to help the middle class."

Sanders’ assertion that the Wall Street speculation tax pays for his college tuition plan is only part of the story. Two-thirds, to be exact.

Sanders estimates that his plan to make undergraduate tuition at public colleges and universities free would cost about $75 billion annually. Based on his proposed College for All Act, the federal government would fund two-thirds of that cost using a tax on Wall Street trading, but participating states would have to kick in the remaining costs.

Sanders’ Wall Street tax proposal primarily taxes the rich in order to provide services to the non-wealthy. It would put a small tax on speculative financial trades, like stocks, bonds and derivatives.

The revenue potential for such a tax is huge because the volume of Wall Street trading is so large. One estimate — which Sanders points to — put the yearly revenue from a financial transaction tax at more than $300 billion.

The nonpartisan Tax Policy Center analyzed Sanders' plan and put the yearly revenue at around $50 billion to $60 billion, much more modest but still enough to cover the approximately $50 billion a year in federal dollars Sanders wants to put in his tuition program. (The difference in revenue estimates largely has to do with how the analysts measured the various taxable trades and the impact of the policy.)

Setting aside a disagreement over how much a Wall Street tax would raise, in any case, Sanders’ own proposal is straightforward about the fact that the tax revenue will not fund the free public school tuition 100 percent. And as CNN’s Burnett noted, there is some concern among skeptics of Sanders’ proposal about this piece in particular: What if state governments don’t want to play ball and refuse to kick in the remaining one-third of program costs?

For example, many states have resisted federal dollars for expanding Medicaid, the low-income health insurance program, under the Affordable Care Act, even though the federal government would provide at minimum 90 percent of the funds to expand the program.  

In order to receive federal funding for Sanders' education proposal, states would have to meet other requirements designed to maintain high educational standards, like reducing the number of low-paid adjunct faculty and maintaining state funding for need-based financial aid. This, combined with the fact that state funding for higher education is tight across the country, raises the question of how states — particularly those whose governments are spending-averse — will respond to such a proposal and how that will affect students living in those states.

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In the CNN interview, Sanders said if a state chooses not to participate, it can expect its students to flock to a state that does.

But Sanders is offering a generous deal that might be too good to pass up, said Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities. He said the amount of federal money Sanders is putting on the table exceeds what states take in with undergraduate tuition, so they shouldn’t have to worry about a shortfall as a result of Sanders’ program.

"But it is theoretically possible that some state does not take federal money," Nassirian said, noting that Sanders’ proposal is massive and won’t necessarily be politically feasible to implement.

Our ruling

Sanders said his free public university tuition program "is paid for… by a tax on Wall Street's speculation."

Sanders’ $75 billion proposal is a federal matching program, meaning the Wall Street speculation tax would cover two-thirds of the costs. States would be required to pick up the tab for the remaining one-third. There is some question if some states would participate in the program. Recently, states have refused to be part of Medicaid expansion under a more generous style of cost-sharing.

Sanders has a point that his proposed Wall Street tax would cover part of the plan, but he left out the significant state contribution. And it’s not a sure thing that every state would join in. So we rate his claim Mostly False.