The Benefits to Taxpayers from Increases in Students - RAND ...

84 The Benefits to Taxpayers from Increases in Students’ Educational Attainment
Putting the Estimates in Perspective
As noted above, we use data collected in 2002 to estimate the models used in this
analysis. In doing so, we assume that the estimated relationships between education
level and governmental revenues and costs will remain approximately the same into
the future. Specifically, we assume that the effects of education on income and, consequently,
on tax payments and participation in social programs, in the future will be
generally the same as the effects observed in 2002. We also assume that federal, state,
and local tax structures, social support programs, and incarceration patterns will not
change substantially in the future.
The level of education needed to succeed in labor markets has been increasing
for decades. And the income gaps between individuals with differing levels of education
have consequently grown consistently over time. It seems likely that the gaps that
existed in 2002, when the data used to estimate our models were collected will, if
anything, widen into the future. If they do so, the effects of education on government
revenues and costs will exceed the estimates presented here.
Federal and state tax structures are changed from time to time, but the changes
are generally marginal. The overall structure has not been significantly changed for
decades. Similarly, the rates and ceilings that determine Social Security and Medicare
contributions have been increased over time, but the general structure of the systems
remain the same. If anything, the growing federal budget deficit and growing concerns
for the future of the Social Security and Medicare systems as baby boomers begin to
reach retirement suggest that the payroll taxes levied to support these programs will
increase over time. If that occurs, the estimates presented here will understate the effects
of increases in educational attainment on contributions to government revenues.
It is obviously possible that the structure of one or more of the social programs
we consider here will be significantly modified sometime in the future. Recent changes
(such as the welfare reform of the 1990s) generally reflect concerns that these programs
were too often used by people who did not need the support offered by the programs.
This suggests that any future changes are more likely to further reduce access to these
programs. If so, increases in the income differential associated with increases in education
will result in greater reductions in social program participation and, consequently,
greater costs than the estimates presented here.
Changes in some of these relationships are likely to occur at some future date.
Consequently, the estimates presented here cannot be viewed as precise. However, the
magnitudes of the estimates are generally so large that even changes that substantially
reduce the effects of increases in educational attainment on government revenues
and costs will not reduce the effects of such increases to zero. Moreover, changes that
increase the effects of education on government revenues and costs are more likely than
are changes that reduce the effects. If such changes occur, the estimates presented here