American Opportunity Tax Credit (Independent Single Filers at Phase Start)

Bulman and Hoxby (2015) find that at the $80,000 kink point for independent single filers, a dollar decrease in income leads to a $0.227 increase in credits claimed by the household. In addition, Hendren and Sprung-Keyser (2020) include the cost implications from increased college enrollment. This includes the cost to the government of paying for a portion of college tuition along with the net increase in future tax revenue from the increased earnings of those who go to college. On net, Hendren and Sprung-Keyser (2020) estimate a net cost of $0.082, so that the increased tax revenue leads the policy to repay much of its upfront cost. However, there is substantial statistical uncertainty in these cost estimates. When confidence intervals are considered, the $0.082 total cost of the program is not statistically distinguishable from the $0.227 up front cost of the program.

The WTP of $0.555 and cost of $0.082 implies an MVPF of 6.75. The 95% confidence interval is [-1.61,\infty], which includes 0. For context, if the AOTC had no effect on college attendance, we would expect the MVPF of this policy to be around 1 (the AOTC would simply be a tax cut that induced a muted behavioral response). As these calculations show, the observed causal effect of the AOTC policy is a sufficiently large MVPF estimate that deviates meaningfully from 1. That said, the confidence interval around the estimate is quite large and so we cannot rule out an infinite MVPF or an MVPF of 0. In other words, this means that one cannot statistically rule out that the AOTC either pays for itself or provides no benefit to the beneficiaries, and suggests the value of further work to increase the statistical precision of the impact of the AOTC.