Education Funding

Bush Proposal: Give Tax Credit for K-12 Tuition

By Mark Walsh — February 13, 2002 7 min read
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President Bush is proposing to deliver through tax policy what he could not with education policy last year: a ticket to private school for students in low-performing public schools.

But his plan for education tax credits will face an uphill battle on Capitol Hill, given the explosive politics of anything that resembles government- financed school vouchers.

Some opponents argue that because the refundable credits would amount to cash grants for some families, the proposal raises the same constitutional questions as vouchers for religious school tuition, a subject the U.S. Supreme Court will consider next week.

As part of the White House budget plan for fiscal 2003, released last week, Mr. Bush called for a federal income-tax credit of up to $2,500 to help families transfer a child out of a public school identified by the state as failing under the Elementary and Secondary Education Act. Parents who opted to send the child to a private school or another public school would receive a credit on their tax returns for 50 percent of the first $5,000 in tuition, fees, and transportation costs.

The credit could also be used to offset the costs of private tutoring, books, and computers to enhance a child’s education. The White House estimates the credit would cost the U.S. Treasury about $3.7 billion over five years.

Because the credit would be refundable, parents who did not earn enough to owe income taxes would instead receive cash from the federal government.

“I think we’re aiming at getting the kids who are stuck in failing schools the chance to get out,” Eugene W. Hickok, the Department of Education’s undersecretary, said at a Feb. 4 press briefing. “It is in line with the president’s ... principle of providing more options and opportunities.”

“It is different from the school choice provisions that were originally offered on the table about a year ago,” Mr. Hickok added. “They received a vigorous debate, and we anticipate a vigorous debate on this. And hopefully, we will prevail.”

But many Democrats, who control the Senate, are not exactly warm to the idea.

“On first impression, it looks like it’s a backdoor way of funding through the federal Treasury school vouchers, which I do not personally support,” said Sen. Bob Graham of Florida, who serves on the Finance Committee, which has jurisdiction over tax policy.

“What he’s doing ... just detracts from the bottom-line commitment that we’ve got to make, and that is to improve the quality of public education,” said Sen. Christopher J. Dodd of Connecticut.

Not all Democrats, however, are closed to the idea.

Sen. John Breaux of Louisiana, often a broker between the parties and also a member of the Finance Committee, said he supports the concept. But, he cautioned, “we’ll just have to look at it all in the context of whether we have enough money to do any of these things.”

Vouchers Revisited?

The proposal is a variation on the theme President Bush put forward early last year as part of the reauthorization of the ESEA, the main federal law for K-12 education. His original plan would have allowed students in a failing school to use a portion of the school’s federal Title I aid to help pay private school tuition.

While the administration soon abandoned that idea in the face of stiff Democratic opposition, Congress did agree to other elements of the president’s plan. The new law will allow parents of students in failing schools to direct Title I money to pay for private tutoring or for the cost of transportation to another public school.

Those provisions of the “No Child Left Behind” measure Mr. Bush signed into law last month reflect an effort to exert greater pressure on states and districts to turn around poor-performing schools, and give families new options when schools don’t improve.

Now, the president wants to use the tax code to underwrite broader school choice.

Some analysts predict the latest initiative will simply prompt a replay of last year’s failed attempt.

“It strikes me as very unlikely that many minds have been changed in the interim,” said William A. Galston, a professor at the University of Maryland’s school of public affairs and an education adviser to the 2000 campaign of Vice President Al Gore. “Even if the mechanism is different, the debate will be the same.”

Marshall Wittmann, an expert on Congress in the Washington office of the Indianapolis-based Hudson Institute, suggests that the tax-credit plan is aimed at shoring up the president’s right flank.

“In many ways, it addresses concerns that conservatives felt that they were being ignored in the education reform bill, ... that more attention was lavished on Ted Kennedy than on them,” he said. Sen. Edward M. Kennedy, D- Mass., was a key negotiator on the ESEA legislation and has earned praise from Mr. Bush for helping bring the bill to completion.

President Bush may not intend to put a robust effort behind the tax-credit plan, Mr. Wittmann suggested.

“It certainly wasn’t part of the State of the Union Address,” he noted. “That makes me wonder how much political capital [the administration] will ultimately expend for this proposal. The only way to build critical mass for it is for the president to talk about it, hold events around it, and put political muscle behind it.”

As of last week, President Bush had yet to publicly discuss the tax credit proposal, leaving that job to others in his administration.

Some GOP leaders in Congress were quick to take hold of the plan. A day after the budget was released, 14 House Republicans, including Reps. John A. Boehner of Ohio, the chairman of the Education and the Workforce Committee, and J.C. Watts Jr. of Oklahoma, the chairman of the House Republican Conference, wrote a “Dear Colleague” letter to marshal support.

“Low-income parents in disadvantaged communities with failing schools should have the same education choices that affluent parents have,” they said.

Mr. Hickok of the Education Department predicted that most of the eligible families would have low or relatively low incomes because of the correlation between such incomes and students’ attendance at poor-performing schools, but the proposal is not means-tested. To qualify, he said, a family’s child would have to have attended a failing school in the same year, or be scheduled to enroll for the following fall.

In addition to the tax proposal, the administration has put forward a couple of new provisions in the proposed Education Department budget for fiscal 2003 to expand school choice. The provisions call for $100 million to help charter schools acquire or renovate facilities and $50 million for a school choice demonstration program, which could include private school vouchers on a limited basis.

Congress may not be the only obstacle to government support for private school tuition. The Supreme Court is slated to hear a case Feb. 20 examining tuition assistance for Cleveland students attending religious schools.


Both the White House and other supporters of the tuition tax credit argued last week that it would clearly pass constitutional muster.

Clark M. Neily, a senior lawyer with the Institute for Justice, said such a credit would be upheld under the Supreme Court’s 1983 ruling in Mueller v. Allen. That decision held in favor of a Minnesota law authorizing parents to deduct certain educational expenses, including tuition at private religious schools, on their state tax returns.

“There isn’t any reason to believe there is a constitutional difference between a tax deduction and a tax credit” covering tuition at religious schools, argued Mr. Neily, whose Washington-based legal group defends vouchers and other forms of school choice.

But other groups disagree. Americans United for Separation of Church and State, also based in Washington, said the administration’s proposal would amount to government- financed vouchers. “In some cases where recipients owe no tax, they would receive a refund” under the tax-credit plan, said Rob Boston, a spokesman for the group. “That would be just like an outright government grant.”

Whether parents can direct government tuition aid to religious schools is the subject of the Cleveland voucher case. A high court ruling upholding the voucher program would likely remove any doubt that a federal tuition tax credit would also withstand scrutiny, Mr. Neily said. But a ruling striking down the voucher program might still leave room for the tax-credit approach.

Several state courts have upheld tax credits that cover private school tuition. Two Illinois midlevel appeals courts last year upheld that state’s $500 tax credit for qualified educational expenses, including tuition at religious schools. The courts cited Mueller in upholding the credit.

In 1999, the Arizona Supreme Court upheld a $500 state tax credit for contributions to scholarship programs that pay for private school tuition, even though most scholarship recipients attended religious schools.

The 3-2 majority on that court rejected arguments that a tax credit raised greater constitutional concerns than the tax deductions upheld in Mueller.

A tax credit is subtracted directly from a tax owed, whereas a deduction is subtracted from a taxpayer’s gross income, reducing the amount on which a tax is assessed.

But the dissenting judges in the Arizona case said there was an important distinction between the Arizona educational tax credit and valid tax deductions and credits. Unlike neutral deductions and credits, the “private school tax credit supports an activity the Constitution forbids the state to support,” the dissenting opinion said.

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A version of this article appeared in the February 13, 2002 edition of Education Week as Bush Proposal: Give Tax Credit for K-12 Tuition


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