Hope and Lifetime Learners Tax Credits

Hendren and Sprung-Keyser (2020) calculate net costs beginning with the direct cost of the tax credit. They calculate this to be $48.87. This includes the mechanical cost of the credit for those attending college scaled by the credit claim rate estimated by Long (2004). It also includes the tax credit costs for those induced into attending college. Next, Hendren and Sprung-Keyser (2020) estimate the cost of changing educational attainment due to the tax credits. This calculation follows the approach of Zimmerman (2014), calculating government costs as total educational costs net of tuition paid by enrollees. Given the program’s estimated (statistically insignificant) negative effect on enrollment, this yields an enrollment cost of -$404.71. Finally, Hendren and Sprung-Keyser (2020) account for the changes in taxes paid and transfers received due to changes in earnings. (The WTP section below outlines these calculations.) They estimate that declining earnings reduce government revenue by $593.36. Adding that value to the other costs components, they arrive at a total net cost of $237.52, with a wide confidence interval that includes zero.

Combining these net cost and willingness to pay estimates produces a negative MVPF. This suggests the government expenditures on the policy does not deliver any benefit. However, the 95% confidence interval is extremely wide and includes positive and negative infinity. This suggests value to future work that generates more statistically precise estimates.

For context, if the Hope credit had no effect on college attendance, we would expect the MVPF of this policy to be around 1 (the HOPE credit would simply be a tax cut that induced a muted behavioral response). As these calculations show, the observed causal effect of the HOPE credit 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 these tax credits either pay for themselves or provide no benefit to the beneficiaries.