> Those families pay no tuition, but still may pay living expenses. The 'pay nothing' tier starts at $65,000
That doesn't actually make anything better. You're attempting to address the perverse incentive for one of the parents in the family making $225,000 to quit their job by pointing to a higher burden on the families making between $65,000 and $125,000, implying that it's less desirable to become one of those families. But the incentive is still there whether it preposterously exceeds 100% or only approaches it, and reducing it by making the burden on even less affluent middle class families worse can't possibly be the right solution.
The only thing that I was 'attempting to address' was that your comment contains a factual error.
Your calculation assumes a family could deliberately reduce their income by $100,000 in order to save $65,000 on their Stanford term bill, resulting in a (net gain of $2,300) but this is not correct. The savings are more like $45,000 (the cost of tuition).
You're quite correct that I didn't account for the cost of housing paid by those making between $65,000 and $125,000, which certainly reduces the marginal rate on those making over $125,000 (not by reducing the actual burden on those people but rather by increasing the burden on those paying between $65,000 and $125,000).
But there are many, many things I didn't account for. The point was not to make a full accounting, the point was to present a back of the envelope calculation demonstrating what can hypothetically happen when programs are structured this way. If you want better researched numbers I encourage you to read this:
Those numbers also point out something else somewhat misleading about my example -- although it is possible (particularly with regard to education programs) for the upper middle class to be ravaged by excessive marginal tax rates, those most hard hit by means tested programs are really the working poor. Have a look in the first graph at the marginal rate on someone making minimum wage.
Your 'back of the envelope calculation' was in error, and in a way that affected the conclusions you drew. You claimed that the new Stanford FinAid policy introduced a 'cliff' (negative returns for increased family income), but it doesn't.
I'm not making any other claims about the merits of progressive taxation, price discrimination by universities, or economic policies affecting the working class. I'm just pointing out your error so that other readers don't rely on your calculations.
From the fine article:
"Stanford will expect no parental contribution toward tuition [~$45K for 2015-6] from parents with annual incomes below $125,000.... And there will be zero parental contribution toward tuition, room or board [~$65K for 2015-6] for parents with annual incomes below $65,000"
So your table should read:
28% federal income tax ($28,000)
9.3% California state income tax ($9,300)
Reduced Stanford FinAid ($45,000)
Total: ($82,300)
This is admittedly a very high marginal rate, but it is not negative.
Of course the calculation was wrong. The correct calculation would require consideration of the entire tax code and every means tested benefit the hypothetical family might be eligible for. But your assumption that the loss of $45,000 rather than $65,000 makes it not a cliff is equally erroneous, because many of the other things not accounted for go the other way. The loss of financial aid may still exceed $45,000 for a family with more than one child in college, or if the housing expenses in question are eligible for some other source of means tested financial aid. The additional income may destroy various previously permissible tax deductions because of the Alternative Minimum Tax. There are any number of totally unrelated benefits that the family may lose eligibility for at the same time.
There is a realistic hypothetical family that loses more than they make in total regardless of whether the loss of Stanford financial aid is $65,000 or $45,000.
"In either case, students will still be expected to contribute toward their own educational expenses from summer income, savings and part-time work during the school year. Students are expected to contribute at least $5,000 per year from these sources but are not expected to borrow to make the contribution."
So its really $5K/yr even at $60K/yr and below, despite the glorious headlines. Its quite a downer to start with a fantastic headline and realize its all BS, although the truth of the matter is a pretty good deal. The article should have been more honest. Under promise and over deliver, as opposed to the opposite provided.
Most jobs for kids at that age aren't going to pay all that well. $9/hr? After taxes, they'll need to be working almost 1000 hours per year to contribute $5k per year from those sources. 1000 hours.
Was comparing this to my own state school numbers from 20+ years ago. One year was < $5k. Min wage at $3. One could work a summer job (or two) and pay for a year of school. That just doesn't seem possible any more, or at least not without a lot of assistance programs.
Nope. Those families pay no tuition, but still may pay living expenses. The 'pay nothing' tier starts at $65,000