The Education Tax Reduces Inequality and the Incentive to Work

At the NYTimes David Leonhardt breaks families down into six income classes from the poor to the very affluent, defined as follows:

Using a tuition calculator he then estimates tuition (including room and board) by income class at 32 colleges and universities (see below–the darker dots indicate the richer income classes). At many private colleges and universities it is not unusual for some students to be paying $70,000 per year while others pay less than $5,000, for exactly the same education. (Tyler and I provide some similar data on college price discrimination in Modern Principles.) Leonhardt’s point is that a poor student can afford an expensive education and might actually save money by going to an elite private university rather than to a state college.

Price discrimination in education has two other, less recognized, consequences. It reduces income inequality and it reduces the incentive to work. If every firm charged twice as much to someone who earned twice as much, there would no consumption inequality despite high measured income inequality. The rich don’t pay more than the poor when they buy the same basket of goods at the grocery store but they do pay much more for the same education.The Affluent pay approximately $70 thousand for education at the colleges Leonhardt examines while the Upper-Middle pay about half that. The effect on inequality is significant for families with kids in college. An Affluent person is 52% richer than an Upper-Middle income person (186/122=1.52) but an Affluent person with a kid in college is only 33% richer than an Upper-Middle income person with a kid in college (((186-70)/(122-35)=1.33). Shockingly, an Affluent person with two kids in college is actually poorer than an Upper-Middle income person with two kids in college! ((186-140)/(122-70)=0.88.

Under income-based pricing the education tax becomes an income tax with all the negative aspects of income taxes on behavior such as diminished work incentives. Let’s take a closer look at an Upper-Middle income parent earning $122 thousand per year. If this parent gets a promotion or takes on extra work that bumps their salary by $64 thousand, they move from being Upper-Middle income to Affluent. At least on paper. At an income of $122 thousand the parent will be paying approximately $35 thousand to send their child to college but at $186 thousand they will have to pay $70 thousand for the same college so the increase in salary of $64 thousand is an effective increase of only $29 thousand. If the Upper-Middle income parent has two children in college, earning more money actually results in a net loss. For an Upper-Middle income family with two kids spaced in age a few years apart the education tax could be a very severe work disincentive for up to a decade.

The education tax is a peculiar tax as it is often paid to private organizations rather than to the government but it is still a tax and for those of Upper-Middle income the education tax is a very significant tax.

The consequences of the education tax on inequality and work incentives are neither well studied nor well understood.


Price discrimination is always a tax. We just never call it that. But, when you use the word tax without linking it to government, you get a silly post.

By the way, look at the second to the last categories, in-state, and compare the distribution to all of the private colleges above.

It's a silly post to call it a tax, when the beneficiary is a private organization like Harvard or Yale.

It's simply price discrimination based on the ability to pay, enabling the institution to extract the most money from the customer.

Yes, it's clearly price discrimination, but with the choices available, I think the Affluent and even Very Affluent are becoming smarter consumers. Even if you won't really miss the money, I think maybe the "wow" schools are still worth it at full price, but after that, it's just crazy to pay those full retail sticker prices for private (and we've told our kids that - they would need to have a really compelling reason if there's a cheaper alternative). Luckily if you get below the "wow" schools, many are using "merit" to engineer their incoming classes, so if you have what they think is "merit" you can get a discount that way. As an example, oldest son automatically got "merit" (half tuition + a little more off) at top 25 school because National Merit Scholar.

It's hard to see how a family making $186,000 a year won't miss three quarters of a million dollars (3 kids x $70K x 4 years).

They clearly aren't trying to maximize tuition revenue. Top schools like Harvard could easily fill their class every year with people who can afford full price.

If Harvard fills their class every year with people who can afford it, they would reduce the value of their diploma by lowering standards.

They also won't be able to preach about economic inequality.

Blaise: that isn't even close to being true. They could easily find full payers/highly qualified + candidates without putting a dent into their standards. They reject thousands of highly qualified kids every year as do all the other Ivies, Stanford, Williams etc....

I think Blaise has it right. If they raise the price as much as they can, they will be perceived as having lowered standards, and diminished the brand, even if they in theory raise standards and only take all 4.0s (unweighted) and 1600 SATs (which is not what they do now, even though they could). That's why they don't raise the sticker price to 250K, even though they probably could fill a class with all 4.0s and 1600s at that *sticker* price (and probably much higher), even without merit.

They could raise tuition to 100K today, except that it just might get parents to organize to refuse to go along. You can cook this frog to the temperature of the sun as long as you do it by just 5% a year.

Seems unlikely. Less than 600 students get a perfect SAT score annually, how big is their class?

Blaise I doubt it. I think they deliberately seek to increase "diversity" by accepting people of all different backgrounds even if means lowering their standards for some. They could probably easily fill their 1600 or so slots every year with rich white kids who have great grades and test scores. I don't know why maximizing revenue or "the value of the degree" would be their goal. What incentive do the people who run it have to do either of those things, if doing so conflicts with their view of social justice?

You're missing the fact they could in theory largely do both (more than they already do) by raising the sticker price even higher - but Blaise is right (see my comment above), they can't raise the sticker price a lot higher.

They're not looking for the smartest people or the richest, but the most likely to be famous and make them look good and donate lots of money (plus some diversity)

Diversity Schmiversity. One of the scholars who got in under the very limited Chinese quota is Xi Jinping's daughter, as are other global potentates' children. Hard not to think the "standards" haven't been lowered for those admits. Maybe it looks good on paper, though.

it's not so obvious that tax is the wrong word though. governments provide elementary and high school education on the government dime, paid for with explicit taxes. the government has in some ways outsourced most of higher education to private groups, but that outsourcing is also heavily funded with public money (federal student loans).

plus, if you want to get a job with the government (something like 15% of total employment?) you frequently need a college degree

plus it's fairly obvious that elite universities barely (if at all) compete on price, except to see who can raise prices the most. i believe there have been anti-trust cases about this.

or in other words, higher education is an anticompetitive cartel propped up by government subsidies and whose outputs are required by government policies. and its prices behave like taxes, but worse (imagine if you got a discount on your taxes for having a high IQ?)

Seems like no one (author or commentors) seems to know what a *tax* is.

Just to clue everyone in, failure to pay an actual tax is punishable by law, whereas failure to pay the price a seller is charging just leaves buyers without the product (not without their freedom).

It's the same. You just lose your freedom to make use of the product.

"Seller not relinquishing his property rights" does not equal "buyer losing freedom to make use of the product". One cannot lose such a freedom if that freedom never existed. You only have a freedom to use the product if you have the property rights to it. If you don't pay enough for the seller to transfer his property rights to you, your freedom has not been infringed.

Not paying your taxes is punishable by law. Making use of a product to which you don't have property rights is punishable by law. Property rights only exist because of law and taxes. It is all very circular and inter-related.

I wish he had started the post with this. I agree it's just like a tax, but I kept on waiting for the shoe to drop about some government imposing such a tax.

The government had a role in this, however. It made enabled student borrowing to go up to very high levels. The colleges responded by increasing "tuition" rates to previously unimagined heights in order to collect all that money. The price discrimination collects full tuition from wealthy families, maximizes indebtedness for middle-class families and enables the fiction of broader merit-based "scholarships" to students from less affluent families.

I agree that government made this problem worse, but if the government were to honest-to-God put a tax on tuition it would be applying pressure in the proper direction by discouraging education spending.

That sounds insane because we are in an insane world of subsidizing a positional good.

All I know is I’m pretty much exactly “Affluent” but with five kids.... I’m also screwed. I’m sure if I wasn’t working class affluent, I would of only had one kid. My fault I guess.

Luckily, the GI Bill exists.

Great Post. I believe the last 'Affluent' should be 'Upper-Middle':

"An Affluent person is 52% richer than an Upper-Middle income person (186/122=1.52) but an Affluent person with a kid in college is only 33% richer than an Affluent person with a kid in college (((186-70)/(122-35)=1.33)."

Thanks. Fixed.

We were the 'mean' upper bracket family who knew the Kruger-Dale results and declined to be fleeced. We were going to be paying full retail wherever our kids went, so the deal was that we'd cover tuition, room and board for one of our state's excellent public universities (living in Ann Arbor, there's a great one right down the street). If they wanted private it'd mean big student loans to cover the difference, which we didn't recommend -- but it was their choice.

If every firm charged twice as much to someone who earned twice as much, there would no consumption inequality despite high measured income inequality.

In a lot of cases, that's exactly what firms do through price discrimination. For many classes of products (automobiles, smart-phones and other electronics, appliances, clothing, furniture, airline seats) the basic models provide 95 percent of the utility of luxury models for a fraction of the price. And so consumption inequality -- properly considered -- is much lower than income inequality.

I am in the same boat. My oldest is just starting middle school, but we are in that dark blue dot. I have already told her that we will cover in state tuition room and board and she is on the hook for the rest. Like you I live in a state (NC) with fine public schools.

Of course, the private or public college or university that "invests" in very smart students from families with low income expects a large return on the investment in the future (i.e., the smart student becomes the successful adult who contributes to the foundation to show his appreciation). In that respect, the low tuition paid by the low income very smart student is just a "loan" to be repaid many times over. Sure, elite schools might appreciate some diversity among its students, but what they really want is the return on investment attributable to lack of diversity among its alumni (i.e., overall affluence).

Agreed. And, don't forget, that these private colleges raise money from their alumni to sponsor scholarships for kids who would not otherwise be able to afford to go there. So, they get the money from the alumni, and turn around and call it an income based scholarship. Let's say they didn't raise money from alumni for scholarships. What would be the result. Obviously, the school would have less income and a different student mix.

That assumes the cost of tuition is set by God and then the college has to do the yeoman's work of figuring out how to let the poor smart kids in, bless their hearts.

Absolutely my experience with 2 in college and one coming soon. There is a significant tax deduction for good SAT (1200+) and grade point averages (4.0+). Every school has a bevy of "presidential" scholarships which are ~50% off. Tell your kids to get A's and offer to buy them a car for graduation because you will save more than that as a family in the dark color bands of that graph. And by the way, in my county, 2 middle aged teachers can easily make 200+ in combined income, which most people do not think of as "affluent"

Showing just how crazy the numbers are, in my case it was telling kid not to worry about distance (6 hour plane flight versus 6 hour drive), because for $30K difference (Presidential scholarship), you could fly home FIRST CLASS almost every weekend and it would STILL BE CHEAPER. (Not that he came home more than Thanksgiving or Christmas, or gets to fly first class, but it shows how crazy the numbers are)

There are no merit scholarships to Ivy League schools, at least

There are merit scholarships to schools that are selective (top 50 liberal arts colleges) but not Ivy League. They like to keep those average SAT scores up.

Right, merit scholarships are relatively rare at the elite schools. (My top-3 liberal arts college also didn't offer them.) At a place like Harvard or my college, where the high quality of the studentry and faculty is the draw, school funds are best spent to make sure that the most qualified applicants are able to afford attendance.

By contrast, merit scholarships make sense at second-tier schools that aspire to become elite (Wash U of St. Louis comes to mind) in order to attract top students who wouldn't otherwise think to apply.

My youngest was high-school valedictorian and got a full-ride scholarship to a good state school. Daddy bought him a Mustang. Just graduated number 1 in the college of medicine and got a 50% scholarship to Med School. Daddy took him to Italy on vacation.

I bet he has a huge cock too. But not bigger than Daddy's.

Those categories aren't really realistic, and you have to think they are being deliberately set up to be unsympathetic to the "affluent". The typical couple whose income is *only* $186,000 and who has a couple of kids is rarely going to have both $300,000 of home equity AND $375,000 of investments after raising those kids to college age (and presumably taking a while to get their income to that level and spending $ on family expenses up to that point). Maybe in the SF Bay Area if they've been lucky with housing and/or stock options, but not in general.

I agree that the numbers aren’t realistic, but in the other direction. The top 10% cutoff for household income is around $120k but for household wealth is around $1.2 million. Therefore, if you were pickling a household with the same level of wealth and income, a household with $186k in income should have significantly more than $675k wealth.

if you look at census data, you see very clearly that household income tends to peak in the 40s and 50s (prime years for sending children to college). but the distribution of wealth looks nothing like the income distribution because it's hugely tilted in favor of people in their 70s who are at peak lifetime wealth and might have only just begun drawing on that wealth for retirement. I happen to think the 300k/375k estimate is much more realistic, at least so long as you aren't in a very high cost of living area.

You have to account for regression to the mean. Income and wealth are correlated, but far from perfectly, someone selected as being at the 90th percentile of one should be expected to be significantly below the 90th percentile of the other.

I suppose next we'll be hearing that holding out in negotiations for more money is a "tax."

'The rich don’t pay more than the poor when they buy the same basket of goods at the grocery store'

The truffles and French champagne AOC cost the same for rich and poor, thus providing an incentive for the poor to work harder. Win-win, right?

'Under income-based pricing'

Actually, under a system that generally provides grants - normally funded by private individuals who seem to feel that that providing a grant to a poorer student to study is a fine use of their money. As noted by Harvard - 'The Faculty of Arts and Sciences Scholarship program includes more than 1,500 individual endowment funds, established by generous alumni and donors, including a transformational gift from Ken Griffin ‘89.'

'the education tax'

One has to admire calling tuition an education tax. Especially when it is private individuals contributing to reducing the burden of tuition for poorer students. And what should we call athletic scholarships? Tax rebates?

'The consequences of the education tax on inequality and work incentives are neither well studied nor well understood.'

Maybe one of the people whose tuition has been significantly reduced through the following program can provide some insight - 'Mercatus PhD Fellowship is a competitive, full-time fellowship program for students pursuing a doctoral degree in economics at George Mason University. Our PhD Fellows take courses in market process economics, public choice, and institutional analysis and work on projects that use these lenses to understand global prosperity and social change. Successful PhD Fellows have secured tenure-track positions at colleges and universities throughout the United States and in Europe.

The total award of up to $200,000 (over five years) includes a monthly stipend, full tuition support (nine credits per semester), and experience as a research assistant working closely with Mercatus-affiliated Mason faculty.'

But maybe, since it appears as basically all their educational tax (plus living expenses) is being paid, maybe they will not have any incentive to work on the problem.

Do you also think the 10% extra in your box of corn flakes is a benefit the company gives you for reasons of charity? Admittedly, some of these "grants" for "low-income students" are charity, but it's quite clear to me that price discrimination plays a role. If they charged everybody 70K a year, they could never fill their classes.

Not that the rich parents get much sympathy from me. They can easily avoid it by sending their kids to public colleges, where the price discrimination is not nearly as insane.

' gives you for reasons of charity'

I never said anything about the reasons that private people gave money to reduce tuition for poorer. (See the discussion about ROI on such giving.) All I said was that it was the choice of the individuals giving their own money to reduce tuition.

Private university, private giver - seems like a private transaction, and yet the putative libertarian has a problem with this, somehow finding it an unfair situation involving something he calls an 'educational tax.'.

misusing the word tax not only invites unconstructive mood affiliation it is analytically wrong.

a tax, levied by a third party reduces the total surplus available to both buyer and seller, thereby disincentivizing the transaction altogether in addition to whatever variable the levy is tied to. a surcharge paid to the supplier does not have this property.

This. There is no dead weight loss from price discrimination. This seems really fundamental.

"a tax, levied by a third party reduces the total surplus available to both buyer and seller" and moves part of the surplus to the third party where it incentivizes a different set of transactions.

Is health insurance as practiced in the US a tax?

Your point would be much better if the only consideration is tuition. My kids will be in school about 8 years of my life, my promotion will increase my income for another 20+ years with good health.

Also consider that affluent people have good smarts, which likely will pass to their kids and allow scholarships.

"We might make a lot of money but, we also spend a lot of money."

“Undergraduate admissions, in its majestic inequality, charges different tuition to rich and poor students alike although they are identical in every other way.” — Anatole Tabarrak

interesting. but in europe university is free. maybe america can learn something here.

Free, maybe, but a much more restricted student body. In the US the mantra is that everyone should have a chance at college. Not so much in Europe where college is generally for academic high achievers who are separated from the rest of the population by testing and sometimes public school tracking programs that would be shouted down as discriminatory in the US.

Do you need a college degree to be an office administrator in Europe?

If the "tax" effect in education were significant, the first-order effect should be on education consumption, with less consumption among the affluent than the working-class and middle-class who pay multiples less. That this is not the case leads me to question whether a second-order impact on labor supply has any magnitude.

One place you might look for an effect would be on affluent families choosing state universities over more expensive private alternatives. It appears that has been happening:

I agree that there's a cliff between ~$125k and ~$200K but wouldn't all that be solved simply by having more categories that take into account the steeping of the income distribution at the tippy top? That is to say, that the sticker price of tuition would be something insane-sounding like $250,000/year but only the absolute wealthiest would pay it (say those making $1MM or more, just spitballing).

That way, the differences in tuition paid by "middle-upper" and "affluent" would more accurately reflect the actual change in one's lifestyle and purchasing power and you could smooth out cliffs altogether.

In other words, It just seems like the min and max tuition are too close to one another.

Combine the Education tax with the Divorce tax, and there are circumstances where the marginal tax rate on a divorced parent with kids between the ages of 10-18 has a marginal tax rate (marginal confiscation rate?) greater than 100%.

I can't help pointing out that the original article makes ZERO mention of the critical fact that makes all these numbers useless: elite colleges matriculate very few students who aren't from affluent or upper-middle class households already. The overwhelming majority of students at elite colleges get very little financial aid outside of loans.


lmgtfy: how many students at harvard get financial aid

"In fact, approximately 70 percent of our students receive some form of aid, and about 60 percent receive need–based scholarships and pay an average of $12,000 per year. Twenty percent of parents pay nothing. No loans required."

So he's not right when he says "overwhelming majority" or even "majority," although it shines a light on this: 30% of students come from families where they can pay over $65,000 without issue (in the college's humble opinion). Even the 95th percentile, with pretax income of $240K, can't swing that.

I messed up by reading of patrick's comment and he's not as wrong as I thought. Oops!

Always appreciated.

Since you didn't explain, I'll just say that Harvard is a special case. But the elite colleges in this article are mostly much poorer than Harvard and offer much less aid.

Also I'm on mobile but I swear there is ample data showing that elite colleges overwhelmingly matriculate people who are already well to do, with very few students from the bottom quintiles of household income

Another consequence of price discrimination is that it encourages the poor to tilt consumption toward the good in question. For a poor person, the cost of college vs remaining basket of goods tilts toward college. This may be paternalistic but it sounds much less clearly bad than "discouraging work".

Yes, it's critical to see how many enrolled freshman / seniors are from which of these sextiles. I understood that Harvard has some 20% students from the top 1%; I'd guess Stanford was almost as bad.

Since the gov't doesn't get the money, it's not really a tax, but it IS a "tax like" cost. The Education Tax-like Costs ... is not nearly so snazzy.

A good way to push colleges to reduce inequality is to actually have the gov't tax them at double their tuition cost when they have more than 1% of their entering students from the top 1%; and more than 10% of their students from the top 10%; and more than 50% of their students from the top 50%. Depending on the tax rates (10%, 100%, 500%) per excess student, this would provide some incentive up to a very very strong incentive to get more students from the lower classes.

Or maybe the government should not interfere and just leave the United State's world class college education system intact.

The graph could have been hugely improved with the size of the circles indicating the percentage of the total students enrolled from which sextile. This is now more common with country graphs, too, where China & India are indicated as bigger data points than Slovakia.

My understanding is that schools take into account the number of kids you are putting through college when determining discounts (and also look at wealth and previous year's earnings so don't assume a promotion is such bad news). Can anyone say whether an affluent family would really be paying $70K/year for both kids in a normal situation?

Alex, this is a great and illuminating post, and helped me consider the effects of college price discrimination in a new light. Thank you.

One friendly concern. You claim:

"Shockingly, an Affluent person with two kids in college is actually poorer than an Upper-Middle income person with two kids in college! ((186-140)/(122-70)=0.88."

I think a lot of colleges take into account the burden of having multiple children in college at the same time when they compute the financial aid package that determines the bottom-line cost of attending college. The cost of having two children in college is, in at least some cases, less than twice the cost of having one child in college. Leonhardt's methodology notes, in small print way down at the bottom of the NYT article, acknowledge this shortcoming of his model.

It may well still be true that an affluent person with two kids in college is poorer than an upper-middle with two kids in college. But I'm not sure it's safe to conclude that based on a model that computes the cost of having two children in college by naively doubling the cost of having one child in college.

Thanks again for this excellent writeup on a fascinating topic.

"If this parent gets a promotion or takes on extra work that bumps their salary by $64 thousand"

Nice promotion. I feel lucky when I get 10% of that.

Why do we want to encourage income producing work if people's lives are better with increased leisure time? Should that really be a consideration?

Growing up, I had a friend whose mother was an entrepreneurial type and she took two years off working when her daughters were applying to colleges, for exactly this reason.

It's not so easy to your money from the elite colleges. For example, public institutions that rely on the FAFSA form don't consider home equity, so paying down the mortgage is one strategy to reduce apparent wealth -- but that gambit doesn't work for many private schools:

Does this actually influence college choice for each class?

On price discrimination "It reduces income inequality and it reduces the incentive to work."

Applied to studying at the community college vs Harvard or Yale, the former require more effort as a student than getting a degree at an ivy league school because they are really easy for graduates of high schools in poor districts???

Applied to home care workers, caring for infirm, elderly, disabled for long hours at low pay is like a vacation compared to a white collar 9-5 job with benefits and paid vacation because the low income workers get food stamps and Medicaid and maybe housing assistance???

If anyone really thinks the amount of pay defines how hard the effort required is delusional. Hey, if being a farm worker is easy, then you should take your vacation during harvest or planting and work as a migrant farm worker because it's so easy work. It would get you out of the office into the sun and physically active, easier than building sand castles on the beach with the kids. Farm work is done by families, including their kids, carved out in the law to allow child labor without government oversight. (Child actors are highly government regulated, paying more than child farm labor.)

It's also a big incentive for "affluent" people to not have children--especially for people on the bottom of the range of people that have to pay full list price.

Health insurance with the Obamacare subsidy structure is also similarly a tax. Upper middle in the US is a suckers game, either be so rich none of this matters or find a time/wage trade off that gets you education/health insurance subsidies.

Hey, if being a farm worker is easy, then you should take your vacation during harvest or planting and work as a migrant farm worker because it's so easy work. It would get you out of the office into the sun and physically active, easier than building sand castles on the beach with the kids.

That used to be common. One of my great-grandmothers used to take the kids on working farm vacations in the summer (while also getting them out of the city during polio season). If you've ever read Of Human Bondage (which was published at about the same time), one of the final chapters takes place during a Kent hop-harvest farm vacation.

100 years later, this is still a thing, although lately heavy-handed minimum wage laws are making it difficult:

But if you're keen on the idea, you may be able to work during the grape harvest -- at least if you're willing to pay for the privilege:

"The idea of Vineyard vacations have become so popular that some wineries actually charge people to work in the fields, so be sure to find the opportunity that best suits you."

"The education tax is a peculiar tax as it is often paid to private organizations rather than to the government but it is still a tax and for those of Upper-Middle income the education tax is a very significant tax."

This is free lunch economics.

It assumes the class slots exist no matter what, so the tuition does not pay for labor plus overhead of taking a class.

Tanstaafl economics focuses on paying workers, labor costs. Taxes pay labor costs, which define the GDP ultimately. Can't have GDP without paying workers. Tanstaafl.

Room and board are often subsidized at well endowed schools, and were commonly subsidized at government schools before the 70s/80s. Subsidized housing was as bad or worse than tenement housing of the era, ie, small one or two room units with 4-8 people.

Government schools had a legislative set price plus subsidy level for room and board and for classes, so rationing was used to discriminate. Only 50% or less upper level slots existed for the mandated by legislation entry classes so 50% of freshmen had to fail in order to double the budget for upper level classes.

One can view price discrimination in multiple ways. Like airline passenger fares. The rich demand a set of courses, and added students can take them with small marginal costs that slightly lower the tuition for the rich who create the demand.

Or like a team sport, which was once done by the rich. The polo team captain paid others, the poor, to be on his team because other rich people would only be team captain. In education, a class subject is enriched by diverse classmates, diverse in knowledge base, diverse in culture. Engineering is a mix of science and production, so the kid of the scientist in the class of kids of factory and construction workers will benefit from their real world experience.

You can not reduce economics down to individual components in an economy and then require they stand alone. Ie, argue that a single price for a BA degree is feasible for 10 students or 10 million students in the US.

Why is Tyler extrapolating from example numbers into areas he has no information on? He talks about what would happen if someone had two kids, when in reality financial aid takes this into account. He also treats the numbers above as if they are hard brackets when they are actually based on a formula. There may be cases where earning more causes a family to pay more than their increased income in tuition, but it’s not supported here.

If you anticipate being in the top 10%, your goal should be to have kids between 35-40. By 53, you can declare yourself financially independent, and either do early retirement if that's what floats your boat, or have enough discretion in how you earn a living to run your income as C-Corp earnings that you won't have to distribute until the kids are out of college. High assets / low income / approaching retirement age is looked upon favorably by the financial assistance gods.

It's a bit silly to claim that affluent people with two kids in college are poorer than the upper middle class when going to college only lasts a few years while the higher income is accrued over many more years. In the end, the person getting the promotion is still much better off despite the higher tuition.

My gut tells me that many wealthy parents value the bragging rights they gain when they send their kids off to top-tier schools.

The consequences of the education tax on inequality and work incentives are neither well studied nor well understood.

It strikes me as extremely dubious that this non-tax has any non-negligible effect on work incentives.

Look at Alex's example:

At least on paper. At an income of $122 thousand the parent will be paying approximately $35 thousand to send their child to college but at $186 thousand they will have to pay $70 thousand for the same college so the increase in salary of $64 thousand is an effective increase of only $29 thousand.

Well, for four years it is. And those who are on track to get those kinds of promotions generally start on that track when they are childless or their kids are very young. Does the 30-year-old with a two-year-old child really say,

"No point in working hard and making more money. If I slack off I'll make up the difference when my daughter gets a need-based scholarship to college?"

Right. It's a disincentive only in the mind of those who stretch wildly to find them.

I think parents fret a little too much over elite schools. And, sadly, it carries through to their children.

Just make education free, job fixed.

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