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

Payments for Taxes and Social Programs 37
Rouse estimated that, assuming a 3.5 percent discount rate and 0 percent productivity
growth, the discounted present value of the additional federal, state, and
local taxes paid by a high school graduate compared with a high school dropout is
about $65,000 in 2002 dollars. 4 She estimated that the discounted present value of the
increase in taxes paid by a high school graduate or more compared to a high school
dropout is about $145,000 in 2002 dollars.
The Effects of Multilevel Increases in Educational Attainment on Tax
Payments
The effects of multilevel increases in an individual’s education on the 2002 value of tax
payments will be somewhat smaller than the sum of the effects of increasing education
from one level to the next for the relevant levels. The estimates of the effects of increasing
education from one level to the next reported above assume income and, therefore,
tax payments, increase as soon as the next level is reached. However, when an individual
moves up two or three levels, the benefits from the initial increase are not realized
until the individual has moved through the second, or third, level.
Table 3.5 lists the estimated increase in the 2002 value of what an individual
would contribute in taxes if he or she graduated from college instead of dropping out
of high school. A white native-born man who completes college rather than dropping
out of high school would pay about $192,000 more in taxes and contributions to social
insurance over his lifetime as a result of his additional schooling. This is less than the
sum of the estimates in the first column of Figure 3.1. The estimated increase in the
2002 value of tax payments for increasing education from less than high school to high
school graduate shown in Figure 3.1 assumes that the high school graduate begins earning
income, and paying taxes, on completion of high school. The estimated increase in
the 2002 value of tax payments for increasing education from less than high school to
college graduate shown in Table 3.5 assumes the individual not only completes high
school, but goes on to complete college and, consequently, defers earning income and
paying taxes for four more years.
Sensitivity Analysis
To explore the extent to which our results are sensitive to the estimates of the effects
of education level on tax payments, we replicated all the calculations assuming that
the effects of increases in educational attainment were 25 percent smaller than our
4
Rouse presents her results in the present value in 2004 of the effects of the increase in education.
We discounted her estimates to 2002 to compare them with our estimates.