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Would Betsy DeVos’ Newest School Choice Idea Use ‘Public Funds’?

By Andrew Ujifusa — April 08, 2019 5 min read
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One of the most prominent features of President Donald Trump’s proposed federal education budget is his administration’s pitch to create $5 billion in annual tax credits to bolster educational choice. These dollar-for-dollar tax credits for private donations to scholarship-granting organizations, branded as Education Freedom Scholarships, could pay for private school scholarships as well as transportation, special education services, and more.

But would the program rely on public money to pay for it? The question isn’t a new one in debates over school choice, but U.S. Secretary of Education Betsy DeVos put it front and center last week on social media:

When reporters responded by pointing out that the tax-credit program would incur a cost of $5 billion in public revenue, DeVos’ team responded by saying the framing of the issue was off-base. Here’s one exchange:

In addition, the DeVos team said that “any costs to the Treasury would be offset” per congressional rules.

‘Run It Through the Tax Code’

Asked why DeVos and her team object to the idea that the tax credits would take money away from public schools, even though the Trump budget request would eliminate billions of dollars in federal K-12 spending, Education Department spokeswoman Elizabeth Hill called it “a fallacy to try to conflate the two.” The Treasury Department wouldn’t be losing “a single additional penny” under the proposal, and therefore it should not be understood as a cost, Hill said.

One term that some might find helpful in this debate is “tax expenditures.” The Tax Policy Center (which is run by the Urban Institute and the Brookings Institution) quotes a 1974 law defining tax expenditures as “revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.” Dollar-for-dollar tax credits for Freedom Scholarships would meet this definition, said Carl Davis, the research director at the Institute for Taxation and Economic Policy, a think tank that studies federal and state tax issues.

“You can take virtually any spending-side policy initiative you might wish to craft and run it through the tax code instead,” Davis said.

Davis also noted that the proposal stands out from how donations to charitable groups are currently treated by Washington as being worth up to 37 cents in tax deductions for every dollar donated. But Hill said the fact that these donations would receive a dollar-for-dollar credit only underscores the Trump administration’s commitment to school choice.

“People do it all the time. We don’t view [the scholarships proposal] any differently than that,” Hill said of charitable contributions. “We have to think about all the ways in which Americans can donate to the charity of their choice and then receive some type of benefit from their choice.”

Still, “tax expenditures” is a relatively technical term that perhaps wouldn’t resonate with a huge portion of the public.

The fact that these credits would be overseen by the Treasury Department and not the Department of Education shouldn’t mislead people about what the credits ultimately represent, said Sasha Pudelski, the advocacy director of AASA, the School Superintendents Association, which opposes vouchers.

“They’re public dollars that are really being redirected into private hands,” she said. “They’re public dollars that are coming [out of the Treasury] at a cost to other programs.”

Lindsey Burke, the director of the Heritage Foundation’s Center for Education Policy—which advocates for school choice as well as a smaller federal role in K-12 education—had a somewhat different but ultimately similar take.

Such a system of tax credits would be preferable to traditional bureaucracies that often surround federal education programs, Burke said. She added praise for the Trump administration for rolling back Obama-era education regulatory schemes, and in general keeping other regulations to a minimum. But she cited Texas GOP Sen. Ted Cruz’s comments about a similar proposal that he said would create new money for school choice.

“It’s hard to look at this and think it is not a federal program,” Burke said.

In addition, Burke worried that a future presidency, particularly a Democratic one, could warp such a tax-credit system to privilege certain policy priorities for admissions and other hot-button issues, such as adding requirements for how transgender students’ access to school facilities is handled. Those kind of moves would only reinforce the idea that the tax credits ultimately represent a federal program, she noted.

Hill, in turn, called this a “straw man argument” because of DeVos’ insistence that the tax credits create a “states-centered, students-first” approach.

“States don’t have to participate. Students don’t have to participate. No one’s compelled to donate,” Hill added.

What about the offset issue? You might have noticed that DeVos’ team said any impact on revenues from the tax credit would be offset due to congressional rules. That’s a reference to a congressional rule known as “PAYGO,” which requires tax cuts, or increases in entitlement or other mandatory spending, to be offset by corresponding spending cuts or tax increases.

Hill said the PAYGO rule would apply to these tax credits. She said the department has had discussions with lawmakers about which offsets they would find acceptable, but declined to identify which possible offsets had been discussed.

However, Davis argued that this arrangement would extend, not end, the debate over these tax credits. That’s because PAYGO ultimately requires a tax hike (not something the Trump administration generally supports), or shrinking or eliminating some other federal program, which might spur a new wave of pushback.

Photo: Secretary of Education Betsy DeVos in August 2017 (Cory Morse/Grand Rapids Press)

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