NCPA - National Center for Policy Analysis

Census Data Shows Inequality Linked to Education, Not Taxes

March 26, 2012

Much of President Obama's rhetoric and proposed policies have focused on eliminating what leftwing analysts have labeled a burgeoning income gap.  However, the researchers and analysts that inform this stance and advocate its resulting policies often fail to account for the causes of that inequality, says Scott A. Hodge, president of the Tax Foundation.

Specifically, the role of education in increasing incomes for the more-educated and lowering incomes for the less-educated is substantial.

  • 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.

This data informs a conclusion that most are already familiar with: those with more education tend to make more money.  Yet, this conclusion also explains much of the ostensibly runaway income gap.  Americans are increasingly enrolling in higher levels of education, and this is raising their earning potential while they become wealthier than those who did not seek higher education.

  • Last year, Census data showed that for the first time ever that more than 30 percent of U.S. adults age 25 and older had at least a bachelor's degree.
  • As recently as 1998, fewer than 25 percent of people this age had this level of education.
  • 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.

This increased prevalence of education explains a large portion of the growing income gap.

  • Census data shows that in 2010, income for high school degree holders averaged $50,561.
  • A person with a bachelor's degree, meanwhile, 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.

Tax policies that seek to tax the rich in order to level the playing field fail to recognize that income inequality is the natural result of government policies that send more people to college.

Source: Scott A. Hodge, "Census Data Shows Inequality Linked to Education, Not Taxes," Tax Foundation, March 16, 2012.

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