Penn Tax Memo Tuition Tax

Penn Tax Memo Tuition Tax Credit Memo Attn: Budget Director: The following memo provides an overview analysis of the impact of the proposed higher education tax credit. This tax credit would be based on one-hundred percent of the first two-thousand dollars of tuition and other qualified student expenses for Pennsylvania taxpayers, and would cover be extended to twenty-five percent of costs after the two-thousand dollar mark is reached. Forty percent of the tax credit would be refundable, a feature that is expected to impact approximately seventy-seven thousand Pennsylvanian taxpayers.

Of primary importance when considering the implementation of this tax credit is the impact on the tax/revenue to the state, which would of course be reduced to some degree by this credit. Current statistics on total college and university enrollment in the state is not available, however using enrollment numbers and college entrance rates of the public education system in the state yields an estimate of approximately seventy-five thousand Pennsylvania citizens entering the Pennsylvania higher education system each year (PASDC, 2012).

This means that close to four-hundred thousand students or more are enrolled in undergraduate or graduate programs and would be eligible for this tax credit. It is likely that the majority of students would qualify for the fully two-thousand dollar credit as well as additional credits, based on the high price of higher education. Even assuming an average of only one thousand dollars in tax credits per affected taxpayer, this would constitute a total revenue loss to the state of approximately four-hundred-million dollars.

Doubling this to a more realistic estimate of a two thousand dollar tax credit for individual -- i.e. reduction in revenue to the state -- per eligible university student -- and the program costs the state close to one billion dollars. In addition, the estimation of seventy-seven thousand individuals that would be able to receive an additional refund from the tax credit suggests that it could actually cost the state a substantial amount of money to operate this program.

These students would not only pay no taxes, but would actually receive money from the state -- a minimally employed student that owed no income tax to begin with could actually receive a refund of eight hundred dollars (forty percent of two-thousand) or more. Clearly, there would be a major impact o the overall state budget from the cost of this program. Though a billion dollars doesn't go as far as it used to, it is still a substantial portion of the state's total sixty-three billion dollar budget (POB, 2012).

Though the money saved or sent out to individual taxpayers through this tax credit would most likely be used to make purchases in the state of Pennsylvania, generating seem revenue.