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26 The Benefits to Taxpayers from Increases in Students’ Educational Attainment replicated all the calculations assuming that the effects of increases in education were 25 percent smaller than our estimates. 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, participation in social programs, and incarceration 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 earnings 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 level on government revenues and costs will exceed the estimates presented here. If the increases in relative income resulting from increases in education level grow over time, they will cause greater increases in relative tax payments and greater decreases in participation in social programs and in incarceration. Federal and state tax structures are changed from time to time, but the changes are generally marginal. Tax brackets and rates are occasionally modified, and deductions are introduced or eliminated. The Economic Recovery Act of 1981 shifted some of the federal tax burden from individuals to businesses, effectively shifting the federal tax more toward a consumption tax. The Taxpayer Relief Act of 1997 introduced tax credits, in essence a spending program operating through the tax system. But 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 hit 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 increased educational attainment on contributions to government revenues. Recent legislation has introduced disincentives for participation in social programs. Commonly called “welfare reform,” the 1996 Personal Responsibility and Work Opportunity Reconciliation Act and the 1997 Balanced Budget Act have resulted in more stringent eligibility rules for many programs and in lifetime-total and one-time caps on participation in income support programs. There has not been significant debate over the structure of these programs since then. 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. The 1996 and
Analytic Approach 27 1997 changes generally reflected concerns that these programs were too often used by people who did not need the support offered by the programs. This suggests that future changes, if any, 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. Incarceration patterns reflect both criminal activity and sentencing patterns. Changes in sentencing guidelines and in early release programs stimulated by prison or jail overcrowding will influence incarceration patterns and, consequently, costs. We are not aware of any systematic trends in the factors that affect incarceration costs. Therefore, the patterns and costs implied by the available data are the best available basis for the estimates. Putting the Results in Perspective In this study, we estimate the effects of increased educational attainment on three major types of government revenues and costs that directly affect taxpayers and for which data are available. These types of revenues and costs are • increased tax payments and payments into social support and insurance programs • reduced spending on social support and insurance programs • reduced spending on prisons and jails. Our estimates are based on models developed using the 2002 SIPP data. The models themselves are subject to statistical variation. If a somewhat different set of individuals had been included in the SIPP survey, the data would be slightly different and the resulting models somewhat different. However, the statistical variation in the models pales in comparison to the uncertainty inherent in estimating future trends and patterns. As noted above, our specific estimates are based on several fundamental assumptions. We assume that the relationships between education level and income and the consequent relationships between education level and tax payments, social program participation and benefits, and incarceration patterns will not change significantly over time. 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, as we will demonstrate in subsequent sections of this report, 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 edu-
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
Page 28 and 29: 2 The Benefits to Taxpayers from In
Page 36 and 37: 10 The Benefits to Taxpayers from I
Page 39 and 40: Chapter Two Analytic Approach There
Page 41 and 42: Analytic Approach 15 effects of edu
Page 43 and 44: Analytic Approach 17 women employed
Page 45 and 46: Analytic Approach 19 State and Loca
Page 47 and 48: Analytic Approach 21 tion of educat
Page 49 and 50: Analytic Approach 23 The difference
Page 51: Analytic Approach 25 but a very sma
Page 55 and 56: Chapter Three Payments for Taxes an
Page 57 and 58: Payments for Taxes and Social Progr
Page 67 and 68: Chapter Four Spending on Social Sup
Page 69 and 70: Spending on Social Support Programs
Page 99 and 100: Chapter Seven Educational Attainmen
Page 101 and 102: Educational Attainment and Public R
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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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