Tax-Reform Proposal Called Threat to Private Schools
Washington--When the board of the Council for American Private Education gathers here for its spring meeting this week, the directors will discuss a topic that has become of paramount concern to private education: the U.S. Treasury Department's tax-reform plan.
A provision of the tax plan would limit and reduce tax deductions that individuals now receive for charitable contributions. Many in the field believe this provision, by weakening the incentive to contribute, would deal a crippling blow to private elementary, secondary, and postsecondary education.
While many doubt that the proposal in its present form will be approved by federal lawmakers, "any organization that depends on gifts must be worked up over this," said Robert L. Smith cape's executive director.
According to Mr. Smith, 15 of the group's board members represent organizations that serve or operate 15,000 private schools, enrolling 4.2 million students--more than 80 percent of the nation's private-school enrollment.
"All these schools are supported, either directly or indirectly, by charitable gifts," said Mr. Smith.
Schools Rely on Giving
A recent survey of 655 member schools by one of cape's constituent organizations, the National Association of Independent Schools, showed that for the 1982-83 school year giving by individuals for cur-rent operations amounted to $117.7 million, or 7.5 percent of total revenue.
That same year, according to a study by the Council for Financial Aid to Education of the 480 nais member schools' individual gifts for both current operations and capital purposes, the reporting schools received $198.1 million from individuals.
According to Msgr. John F. Meyers, president of the National Catholic Educational Association, the group's 10,000 Catholic schools receive only about half their operating revenue from tuition and fees. "The collection basket of the parish makes up the difference," the monsignor said. Most parish funds, he was quick to add, come from tax-deductable contributions to the church, which could also be affected by the tax plan.
Private-school educators are also troubled by provisions in the tax plan that would tax employee fringe benefits not currently taxed, such as health insurance, free or subsidized housing, tuition assistance, and faculty meals.
Since private schools have traditionally offered smaller salaries than the public schools, many have attempted to compensate by offering teachers attractive fringe benefits. In many schools, on-campus housing and meals are intended to foster more contact between teachers and students, and thus are considered part of the educational program.
If these benefits become taxable items, "teachers will feel the crunch" and will seek higher salaries, Mr. Smith said, but many schools could not meet such demands without increasing tuition.
Private-school leaders argue that pressures to raise teachers' salaries, compounded by a drop in charitable gifts, would inevitably drive tuitions up. And funds that otherwise would have been available for financial aid to attract low-income students, who add diversity and balance to many private schools, would be applied to such nondiscretionary expenses as teacher salaries, said Richard F. Barter, chairman of the nais board of directors and head of the Collegiate School in New York City. "It would be a disaster," he said.
Meeting with nais leaders at their annual conference here recently, White House Chief of Staff Donald T. Regan said he was not certain the limits on charitable deductions would hurt private schools. Mr. Regan was Treasury Secretary when the tax-reform plan was introduced last year.
According to Mr. Barter, who attended the meeting, Mr. Regan told of his experience as chairman of the board of trustees at the University of Pennsylvania, where "he found that many people gave, not because of the tax rate, but because they were committed to the institution. He suspects that the phenomenon of giving in America will continue," Mr. Barter said.
But John C. Esty Jr., president of the nais, is less optimistic. "Until I get better data and we have the capacity for better analysis," he said. "I think I must function on the belief that our charitable giving would be hurt by the Treasury proposal."
Both Mr. Esty and Mr. Smith are collaborating with Independent Sector, an umbrella organization for 600 nonprofit institutions that opposes any changes in the tax policies favoring charitable contributions.
Robert M. Smucker, vice president of government relations for Independent Sector, said in an interview last week that research indicates the Administration's proposed tax plan would have an "enormous impact" on charitable giving.
If the plan is approved, "we will see the largest drop in charitable giving since Congress allowed a charitable-giving deduction in 1917,'' Mr. Smucker said.
A study commissioned by Independent Sector estimated that the Treasury's tax plan would reduce all charitable giving by individuals by 21 percent, or $11.8 billion a year.
Of all the institutions affected by the charitable-giving provision of the tax plan, Independent Sector's research indicates, schools would be most adversely affected.
Giving to higher education would drop by 30 percent, or $2.98 billion, Mr. Smucker estimated. Other giving to education, including gifts to precollegiate private education, would drop by 37 percent, according to the research, representing an annual loss of $950 million.
Task Force Formed
Concern over the tax plan has prompted representatives from such cape organizations as the nais, the National Society for Hebrew Day Schools, and the U.S. Catholic Conference to form a task force to address tax matters, particularly the Treasury's proposal.
The task force is working with Independent Sector to make sure that private schools' interests are considered by lawmakers.
It is also seeking to keep private-school educators informed about the status of various federal tax-reform proposals.