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

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18 The Benefits to Taxpayers from Increases in Students’ Educational Attainment The available data do not distinguish between part-time and full-time employment or between U.S.-born and immigrants. There is little variation over time and no trend over time in the employment percentages for each race/ethnicity and gender group. It is clear that more highly educated people are more likely to be employed, regardless of race/ethnicity or gender. This is no surprise. Because more highly educated people are generally paid more, their opportunity cost of not seeking employment is greater. The higher wages paid to more highly educated people show that they are more valued by employers and, consequently, more likely to find work when they seek employment. The available data clearly show that more highly educated people are both more likely to be employed and, when employed, paid higher wages and salaries. Hence, more highly educated people have higher incomes. Tax Payments Increases in income result in increases in federal, state, and local tax revenues and in contributions to social support and insurance programs, such as Social Security and Medicare. We develop separate models to estimate the effects of education on federal tax payments, on state and local tax payments, and on contributions to Social Security and Medicare. Because of the substantial differences between men and women in employment status and wages and salaries earned when employed, we develop separate models for men and women. Federal Income Taxes Federal income taxes are paid by families (consisting of one or more individuals) out of family income, regardless of any particular family member’s income. Therefore, we use a reduced form ordinary least squares (OLS) regression approach. Rather than estimating a family’s income and then their tax payments, given their income, we use family income data from the 2002 administrations of the SIPP and 2002 taxation rates by income group (Parisi, 2004–2005) to estimate federal income tax payment on a family basis. We divide this amount by the number of adults in the family to compute tax payments by individuals. We then model payments as a function of education level, age, and demographic characteristics (gender, place of birth, and race/ethnicity). We forecast payments throughout the entire working life of an adult, using appropriate survival rates, to estimate the differential impact of education level on public revenues in each year of an individual’s life. We then discount the annual estimates to 2002 to estimate the present value (2002 dollars) of the impact of an increase in education on federal tax payments.
Analytic Approach 19 State and Local Taxes State and local taxes are estimated like federal income taxes. We assume that such taxes are also paid out of total family income. Hence, state tax payment estimations also consist of a single regression. We calculate state and local tax payments by applying average national tax rates to pre-transfer family income reported in the SIPP. Similar to federal taxes, state tax payments are also evenly divided among the adults in the household for the OLS regression. Payroll Taxes Social Security and the hospital insurance portion of Medicare are financed by taxes levied on individual earnings. Not every individual pays these taxes; only the employed pay. Therefore, we use a two-part model to estimate payroll taxes. In the first step, we fit a probit model to estimate the likelihood that an individual will have positive earnings and will, therefore, pay payroll taxes. In the second step, we use an OLS model to estimate the amount of payroll taxes paid, conditional on having positive earnings. Payroll tax payment for every individual is calculated by applying the statutory payroll tax rates to individual earnings data in the SIPP. The specific response variable in the OLS is the logarithm of assumed payroll tax payments. Social Program Participation and Costs We estimate the effects of increases in educational attainment on social support program spending in each of the eight largest social support and insurance programs for which sufficient data on program participation and spending are available. These include • welfare programs (Temporary Assistance to Needy Families, general assistance, and other welfare) • subsidized housing (public housing and rental assistance) • food stamps (the Supplemental Nutrition Assistance Program) • Supplemental Security Income (SSI) • Medicaid • Medicare • Unemployment Insurance • Social Security (retirement, disability, and survivor programs). These programs can be broadly divided into two categories: (1) social support programs that provide cash and noncash benefits to members of low-income households and (2) social insurance programs that replace the lost income of people who cannot work because of old age, disability, severance, etc.
Page 1 and 2: THE ARTS CHILD POLICY CIVIL JUSTICE
Page 3 and 4: The Benefits to Taxpayers from Incr
Page 5: Preface Meeting the educational dem
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Page 11: Figures 3.1. Present Value of Lifet
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Page 25: Abbreviations ADA CPS EITC FTE GED
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Page 39 and 40: Chapter Two Analytic Approach There
Page 41 and 42: Analytic Approach 15 effects of edu
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Page 47 and 48: Analytic Approach 21 tion of educat
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Page 51 and 52: Analytic Approach 25 but a very sma
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Page 55 and 56: Chapter Three Payments for Taxes an
Page 57 and 58: Payments for Taxes and Social Progr
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Page 69 and 70: Spending on Social Support Programs
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70 The Benefits to Taxpayers from I
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Chapter Seven Educational Attainmen
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Educational Attainment and Public R
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Appendix A Data and Sources Data Th
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Data and Sources 89 Program Benefit
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Appendix B Estimating Tax Payments
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Estimating Tax Payments 93 Federal
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Appendix C Social Program Participa
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Social Program Participation and Co
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Appendix D Incarceration Cost Estim
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References Aos, Steve, Roxanne Lieb
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References 115 Krop, Richard, Steph
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References 117 U.S. Department of J
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