Higher Education Pays Dividends to Taxpayers, Too

May 16, 2014 by

Trostel-Table

Mainers with college degrees earn more over their lifetime than Mainers without them, but all Maine taxpayers share in the benefits as well, according to new estimates by University of Maine economist Phil Trostel, in the third installment in a new series of reports published by the Maine Development Foundation.

Mainers with Bachelor’s degrees will pay about $136,000 in state and local taxes over the course of their lifetime, while only costing states and municipalities an average of $16,000 in the form of time they spend in courts and jails, assistance they receive through unemployment benefits, workers comp, Medicaid, etc.

Estimated in current dollars, therefore, the net fiscal impact on state and local budgets that a typical Mainer with a bachelor’s degree has over his or her lifetime is about $120,000. This is a conservative estimate that does not account for future earnings growth and discounts future earnings and costs using a real interest rate of 3% (the real interest rate is the nominal interest rate minus the rate of inflation).

Mainers with high school diplomas only, on the other hand, have a net lifetime fiscal impact of only $45,000. Trostel estimated the present value of the taxes they will pay over their lifetime to be about $91,000, and the present value of the costs they will impose on state and local governments to be about $46,000. And the typical Mainer with less than a high school diploma will actually cost state and local government more ($15,000) over his or her lifetime than he or she will pay in taxes.

What does all this mean? The dividend public investments in education pay are even more valuable than we thought they were. By better preparing kids for college, investing in retraining and education for displaced adult workers, and making college more affordable, we can increase the number of Mainers with college diplomas. Not only will that improve the productivity of our workforce and help those folks earn higher wages and salaries over their lifetime, it will also improve the bottom line for state and local governments and save taxpayers money over the long run.

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