American Opportunity Tax Credit, Single Filers at Phase Start

Enacted in 2009 as part of the American Recovery and Reinvestment Act, the American Opportunity Tax Credit (AOTC) expanded the eligibility for tax credits on higher education tuition and fees for both high- and low-income families. The legislation provides tax credits equal to 100% of the first $2,000, plus 25% of the next $2,000 (for a maximum of $2,500), for qualifying postsecondary tuitions and fees for each of the first four years of postsecondary education.

The amount of AOTC depends on income in a piece-wise linear fashion. Bulman and Hoxby (2015) use kinks in the phase-out schedule of the AOTC as well as a simulated instruments design to estimate the impact of tax credits on college enrollment. This MVPF estimate considers the MVPF implied implied by the kink in the AOTC schedule faced by single filers at the beginning of their phase out region. For married joint filers, the American Opportunity Tax credits begins to phase out $80,000. The phase out rate is linear in this region, which allows Bulman and Hoxby (2015), to exploit the discontinuous change in the slope of the benefit schedule at both the beginning and end of the phase period to study the impact of tax credits for households with income near these kinks for 2011 tax filers.

In general, Bulman and Hoxby (2015) find that the AOTC did not have a statistically significant impact on college enrollment outcomes. That said, the effects can still be translated into their implied MVPFs with their implied confidence intervals. Hendren and Sprung-Keyser (2020) take the causal estimates from Bulman and Hoxby (2015) and project the impact of the AOTC on lifetime earnings and tax revenue. They utilize estimates from Zimmerman (2014) on the impact attendance of college on earnings and assume that the returns to college are constant in percentage terms over the lifecycle.