The EITC college fund proposal does not answer several contingencies. What happens to the money if the kids don't go to college? What if they don't finish? Is the money a loan or a grant? And -- here's the best part -- since Booker wants the government to match donations to the fund from families (or states or nonprofits), if the family of a grant recipient is able to make a donation, what the heck are they doing getting an EITC subsidy in the first place?!
Booker also raises the issue of mortgage principal reduction. This is shades of the twice-vetoed New Jersey Residential Foreclosure Transformation Act (against which I testified before the New Jersey Assembly last year). This is horridly bad policy for two strong reasons. First, a principal reduction for some homeowners is about as unfair as it gets for every other borrower who is struggling to pay on time and in full. The counterargument, that principal reductions are needed to avoid foreclosures, abandoned houses and falling property values due to blight, is pure bunk and also represents a form of bribery. Principal reductions result in only a modest reduction in the homeowner's monthly payment, the same reduction that is achieved with a temporary moratorium on interest rate increases. The borrower's ability to stay in the home is barely affected, because the causes of that borrower's delinquency or default are often so great that their ability to pay anything on the house is in grave question. Secondly, principal reduction forces the banks or the investors holding the mortgage to absorb and recognize an immediate loss, an event which will make them increasingly reluctant in the future to either issue or buy mortgages. Those consequences will reduce real estate market liquidity when it becomes much harder to get a mortgage, on any terms, at any interest rate.