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

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30 The Benefits to Taxpayers from Increases in Students’ Educational Attainment Federal personal income taxes—taxes on income levied at the federal level. We use family income data from the 2002 administrations of the SIPP (U.S. Census Bureau, 2005a, 2005b, 2005c) and 2002 taxation rates by income group (Parisi, 2004 –2005) to estimate federal income tax payment on a family basis. We split this amount among all 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). Finally, we forecast payments throughout the entire life of an adult through age 79 using appropriate survival rates to estimate the differential impact of education level on public revenues. This approach understates the effects of education on federal income tax payments. Because more highly educated people earn more, on average, and federal income taxes are progressive, the more highly educated adults in a family contribute disproportionately more to the family’s tax obligation. By attributing a proportional share of federal tax payments to each adult in the family, we understate the effects of education level on federal tax payments. We excluded Earned Income Tax Credits (EITCs) due to highly inadequate data in the SIPP. In the full SIPP topical tax module sample of 68,700 people, 66,800 did not even answer the EITC question. Another 900 responded “don’t know.” Only 862 claimed any EITC. Response choices for EITC amount were in terms of brackets of $200, and 122 of the responses (15 percent of the beneficiary subsample) were in the broad “more than $3,500” category. EITC is now the largest transfer program, larger than Temporary Assistance to Needy Families. Because increases in education level result in higher earnings, increases in education level will reduce the likelihood of participation in EITC. The exclusion of EITC from this analysis therefore biases the estimates of the effects of education on the costs of social support programs downward. Federal payroll taxes—taxes on earnings levied at the federal level that finance Social Security and Medicare benefits. We use individual earnings data from the 2002 administrations of the SIPP and statutory tax rates (and the Social Security tax cap) to estimate payroll tax payment on individual basis. However, payroll taxes are paid only by those who have any earnings. Therefore, we first model the probability of employment as a function of education level, age, and demographic characteristics. For those individuals who work, we then model tax payments based on educational attainment, age, and demographic characteristics. Finally, we forecast payments throughout the entire life of an adult through age 79, using appropriate survival rates, to estimate with the differential impact of education level on public revenues. State income, property, and sales taxes—taxes on income that are levied at the state level and taxes on consumption that are levied at the state and local level, including sales, real estate, and excise taxes. We use family income data from the 2002 administrations of the SIPP and national average state and local tax rates by income group to estimate state tax payments on a family basis. We divide this amount evenly
Payments for Taxes and Social Programs 31 among the adults in the household to compute average tax payments by individuals. We then model payments as a function of education level, age, and demographic characteristics. Finally, we forecast payments throughout the entire working life of an adult to calculate the differential impact of education level on public revenues. This approach underestimates the effects of increases in education on state tax payments. When a family includes two or more adults, we assume the tax payments made by the family are evenly distributed among the adults. Accordingly, we understate the contributions the higher-paid members of the family contribute to the family’s tax payments and overstate the contributions lower-paid members of the family contribute to the family’s tax payments. Because more highly educated people are generally the more highly paid members of a family, we underestimate the effects of an individual’s education level on his or her contributions to state tax payments. Appendix B provides the details of the models we used to estimate the effects of education level on state tax payments. Educational Attainment and Earnings Educational attainment increases the likelihood of being employed and it increases wages when employed. More education also increases the likelihood of labor force participation, so the effects of education level on income are greater than the effects on earnings alone. The distributions of both annual average individual earnings and annual average family income in our data exhibit a strong association with education level, as can be seen in Tables 3.1a and 3.1b. For a sample of roughly 40,000 nationally representative individuals covered in all months of 2002 by the SIPP, the summary figures indicate that both average individual income and average family incomes rise steeply with education level. Table 3.1a shows the average earnings by education level and ethnicity for all persons in the sample, including those not employed. Accordingly, they reflect the effects of education on both employed persons’ wages and salaries and the likelihood that a person will be employed and, if employed, their hours worked. For the entire sample, bachelor’s degree holders, on average, earn more than two times what high school graduates earn. For Asians this ratio rises to three times. Comparable differences are not as large for family incomes, probably as a result of congregation of high earners and low earners within households. Table 3.1b shows average family income. The data include only cash income. Inkind benefits, such as food stamps or Medicaid benefits, are not included.
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THE ARTS CHILD POLICY CIVIL JUSTICE
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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
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
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Page 51 and 52: Analytic Approach 25 but a very sma
Page 53 and 54: Analytic Approach 27 1997 changes g
Page 55: Chapter Three Payments for Taxes an
Page 59 and 60: 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
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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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