How taxpayers benefit when students get more education

RAND
January 30, 2018

Activities: Education

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As the costs to meet education requirements continue to increase at ridiculous rates, many public schools face budgetary challenges. Furthermore, with a number of taxpayers without children in their towns’ school systems, they often feel they shouldn’t contribute toward increasing taxes toward local education.

To address these issues, RAND researchers examined the value delivered by increasing investment in school systems and how higher educational attainment affects benefits to taxpayers over time. The group looked at how increases in individuals’ educational attinment relate to tax revenues, expenditures toward social services, and spending for prisons and jails. While a bit dated (early 2000s), the directionality of the study is relevant toward working with a baseline of information in delivering cost/benefit analyses to state and local policy decisions.

Tax revenues
As expected, the higher a student rises, the greater the expected earnings he can expect and in turn, the higher amount of taxes he will pay.

Greater educational attainment increases the likelihood that an individual will be employed and raises the level of his or her wages when employed. Although researchers cannot estimate the causal relationship precisely, the available evidence indicates that more education is associated with at least 7 to 10 percent higher earnings per additional year of schooling among those who are employed. The higher earnings realized by more highly educated people result in higher tax payments and higher payments to social support and insurance programs, such as Social Security and Medicare.

Social support programs
Those with more education draw less from social support programs. An individual is less likely to draw on social programs because a higher level of education typically leads higher employment levels and higher expected wages. The programs most avoided are food stamps, Medicaid, Temporary Assistance for Needy Families, housing subsidies, and unemployment insurance.

The higher earnings resulting from greater educational attainment also reduce the amount that a more highly educated person is likely to collect when he or she does participate in most social support programs, with the exceptions of Unemployment Insurance and Social Security. These reductions in the costs of social support programs represent a value to taxpayers, who would otherwise have to fund the programs at a higher level. The RAND researchers found that the greatest reductions in spending on social support programs were associated with an individual graduating from high school rather than dropping out.

Incarceration costs
An increased level of educational attainment is associated with lower levels of criminal activity. This decreases the likelihood of an individual becoming incarcerated. Reductions in prison and jail populations leads to lower costs of operation and maintenance of such facilities. Like other categories, the greatest jump in savings comes from individuals graduating from high school as opposed to dropping out.

Net impact to budgets
To estimate the total impact to government budgets, the researchers calculated the sum of tax revenue increases and subtracted social service and incarceration spending related to each individual climbing the education ladder.

On average, increasing a U.S.-born white male’s educational attainment from some high school to high school graduation would be associated with increased tax payments over his lifetime equal to $54,000 (all figures in this paragraph are in 2002 present-value dollars). The increase in his educational level would also be associated with reduced future demands on social support programs and reduced future incarceration costs equal to about $22,000 and $13,000, respectively.

Thus, the average total value associated with increasing this individual’s educational level from some high school to high school graduation would equal about $89,000. Providing the additional education would cost about $15,000, so the net value to taxpayers would be about $74,000. Even if the estimated effects are reduced by 25 percent, the estimated savings for this individual would be about $51,000.

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