Education, Earnings, and Tax Payments
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Higher levels of education lead to both higher levels of earnings for individuals and higher tax revenues for federal, state, and local governments.
Key Points
- The median earnings of bachelor’s degree recipients working full-time year-round in 2008 were $55,700, $21,900 more than the median earnings of high school graduates.
- About $5,900 of the additional $21,900 in earnings of four-year college graduates went to federal, state, and local governments in the form of higher tax payments. Median after-tax earnings were $16,000 higher for those with a bachelor’s degree than for those with only a high school diploma.
- Individuals with some college but no degree earned 17% more than high school graduates working full-time year-round. Their median after-tax earnings were 16% higher.
- The median total tax payments of full-time workers with a professional degree in 2008 were over three and a half times as high as the median tax payments of high school graduates working full-time. After-tax earnings were almost three times as high.
- Individuals with higher levels of education are more likely to have earnings and more likely to work full-time year-round. Including all adults or all working adults in this figure would increase the income differences associated with higher levels of education.
- Eighty percent of college graduates ages 25 or older had earnings in 2008 and 60% worked full-time year-round. Sixty-three percent of high school graduates ages 25 or older had earnings, and 44% worked full-time year-round.
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- All of the differences in earnings reported here may not be attributable to education level. Education credentials are correlated with a variety of other factors that affect earnings, including, for example, parents’ socioeconomic status and some personal characteristics.
- While the average high school graduate might not increase his or her earnings to the level of the average college graduate simply by earning a bachelor’s degree, careful research on the subject suggests that the figures cited here do not measurably overstate the financial return of higher education (Carneiro et al., 2003; Rouse, 2005; Harmon et al., 2003).
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Figure 1.1: Median Earnings and Tax Payments of Full-Time Year-Round Workers Ages 25 and Older, by Education Level, 2008
| Education Level | After-Tax Earnings | Taxes Paid | Before-Tax Earnings |
|---|---|---|---|
| Not a High School Graduate | $19,600 | $4,700 | $24,300 |
| High School Graduate | $26,700 | $7,100 | $33,800 |
| Some College, No Degree | $31,000 | $8,700 | $39,700 |
| Associate Degree | $32,700 | $9,300 | $42,000 |
| Bachelor's Degree | $42,700 | $13,000 | $55,700 |
| Master's Degree | $51,100 | $16,200 | $67,300 |
| Doctoral Degree | $68,800 | $23,100 | $91,900 |
| Professional Degree | $74,400 | $25,600 | $100,000 |
The bars in this graph show median earnings at each education level. The lighter segments represent the estimated average federal, state, and local taxes paid at these income levels. The darker segments show after-tax earnings.
Note: Taxes paid include federal income, Social Security, Medicare, state and local income, sales, and property taxes.
Sources: U.S. Census Bureau, 2009; Internal Revenue Service, 2008; Davis et al., 2009; calculations by the authors.
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