There have been a number of reports published recently that purport to show a link between rising inequality and changes in taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. policy – especially tax cuts for the so-called rich. The latest installment comes from Berkeley professor Emmanuel Saez, Striking it Richer: The Evolution of Top Incomes in the United States.
Saez and others who write on this issue seem so intent on proving a link between tax policy and inequality that they overlook the major demographic changes that are occurring in America that can contribute to – or at least give the appearance of – rising inequality; a few of these being, differences in education, the rise of dual-earner couples, the aging of our workforce, and increased entrepreneurship.
Today, we will look at the link between education and income. Recent Census data comparing the educational attainment of householders and income shows about as clearly as you can that America’s income gap is really an education gap and not the result of tax cuts for the rich.
The chart below shows that as people’s income rise, so too does the likelihood that they have a college degree or higher. By contrast, those with the lowest incomes are most likely to have a high school education or less. Just 8 percent of those at the lowest income level have a college degree while 78 percent of those earning $250,000 or more have a college degree or advanced degree. At the other end of the income scale, 69 percent of low-income people have a high school degree or less, while just 9 percent of those earning over $250,000 have just a high school degree. [For simplicity, I have left out workers with associate’s degree or some college.]
It is more than ironic that those, such as President Obama, who advocate for increased government funding for student aid would then decry the inequality that results from a growing class of college-educated workers. Last year, Census reported that “for the first time ever, more than 30 percent of U.S. adults 25 and older had at least a bachelor’s degree…As recently as 1998, fewer than one-quarter of people this age had this level of education.”
Census data also shows that in 2010, a worker with a high school degree made an average of $50,561, while a person with a bachelor’s degree made an average of $94,207 – 86 percent more. Someone with a master’s degree made an average of $111,149 – roughly 120 percent more. In 2010, there were 5.6 million more Americans with bachelor’s degrees than in 1998 and nearly 3.5 million more with master’s degrees. The income differences are even more extreme for those with professional degrees or doctorates.
This raises two questions for those who advocate for using the tax code to address inequality. First, how will higher tax rates on highly educated individuals make them less successful? And, how will taxing the educated rich somehow make the legions of workers with high school degrees more successful?
Either way, a higher tax bill should not be the price of a college diploma.
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