By Joy Pullmann • The Federalist
Despite running two-thirds of states and looming fiscal catastrophes for which school choice is one of the few positive solutions, Republicans have mostly created tiny, overregulated choice programs that, consequently, have few significant effects. After decades of opinion polling have continued to find school choice a popular political position, Republicans have finally decided it’s safe for them to proclaim their support for it — without having taken or promising to take steps that actually would realize their rhetoric.
A new example of this tendency is inside the House GOP’s huge “tax reform blueprint” released last week and under consideration currently, more than a year after presidential candidate Donald Trump promised “major tax reform” if he were elected (presumably a signal to legislators to get some bills ready to roll come Inauguration Day, but obviously not). The current proposal would allow tax-advantaged savings accounts, or 529 plans, now only offered for college expenses to also apply to K-12, including private school tuition.
As federal school choice plans go, this structure is the least objectionable. It’s also the least effective. This plan would basically give at most a tiny tax break to the kind of parents who start saving for private tuition as soon as they know they’re pregnant. That means we’re trading the cronyism of a special favor to a certain constituency in exchange for very little socially positive returns, since the kind of parents who know at birth they will privately educate their children are not likely to change their minds over an incentive worth a few hundred bucks a year.
Here’s why, and what the GOP-led Congress should do instead if they want constituents to actually give them credit rather than cynicism for telling us they support school choice.
Let’s Consider the Ideal Scenario, Although Unrealistic
To see just how little financial benefit, and thus school choice incentive, the House GOP’s tax plan provides for families, let’s consider an ideal scenario. Take Jack and Jill, a married couple without children who are insanely well-organized. They know they plan to have children, they have paid off their college debt, and are currently dual-income. So they have significant disposable income and are unusually disciplined and long-sighted about allocating it. We’re already describing almost no American twenty-somethings. They’re not married, they have significant student loans and credit card debt, and they are used to living like their baby boomer parents do, which is to say, they blow lots of money and don’t plan for kids.
At any rate, Jack and Jill decide to get in on this education savings account, which cannot be opened until they are pregnant. Those plans are basically tax-advantaged savings accounts, for which most states plus the federal government will not tax the interest. Some states also make contributions partially or fully deductible.
This 529 calculator finds that if Jack and Jill open this account once pregnant then add $5,000 every year for five years, the financial benefits from federal taxes will be $1,492 (assuming they file taxes jointly, hit the 15 percent tax bracket, and get an investment return on this account of 8 percent). So once junior reaches kindergarten, his super-prescient parents are $1,492 ahead on tuition for him (or to pay for school uniforms, textbooks, and other such education expenses). That’s, of course, all assuming they have $25,000 to stash away for each kid every single time they know five years in advance they will enroll him or her in private school.
After that, they’re not getting much annual benefit even if they do run K-12 tuition through the account, because they have to draw on it every year once junior’s in school. Still assuming they put in $5,000 per child per year, under the same return and tax bracket assumptions above, each year junior’s in school having this account puts them ahead $120 on federal taxes, says the calculator. That doesn’t include state tax benefits, but the chart abore, estimating an annual $1,200 contribution from a couple making $100,000 a year, indicates it’s not going to be much more than double the savings. A max of $250 per kid per year for the most disciplined, attentive, financially savvy people in the country. Woo-freakin’-hoo.
As a private school parent, I wouldn’t mind saving $250 per kid per year by doing a pile of paper-shuffling, but at large this is not going to really provide or incentivize school choice so much as give financially savvy families already dedicated to private schools a modest tuition discount. It’s a special-interest carveout for a very small constituency that doesn’t significantly broaden Americans’ access to a wider range of schools. Given that the United States has a major spending problem, we should not be giving away tax breaks that don’t accomplish significant social goods.
The 529 Program Should Be Ended Instead
I agree that private schooling is a significant social good. It is far more efficient than public education, educating children and passing down American values better than public schools do at a tiny fraction of the spending, regardless of whether you measure by private or public spending or both. Yet we’re not really trading the $600 million the House plan estimates this carveout would deduct from federal revenues each year for an increase in these social goods if the financial benefit is too small to encourage significantly increased private enrollment.
Thus we need to balance the benefits, which appear very small, with the costs. Libertarian types will say it’s unfair to use the tax code for social engineering, meaning awarding advantages to people who make choices in favor with those currently in political power. With the American founders, I think some amount of government preference for true social goods is not only inherent to governing but necessary for a healthy society — such as, for example, preserving and advantaging marriage to foster the healthy families that reduce demand for government growth and keep society self-governing.
Yet this specific carveout does not generate enough advantages to justify its existence. Allowing it, then, tends towards preserving the Swiss-cheese tax code we have now, where because one constituency got their tax favoritism lawmakers are more susceptible to giving another, and another, and another according to those who manage to shout loudest, have personal relationships they can leverage with powerful people, or donate more to re-election campaigns. It’s easier to cut loopholes if you cut them all, because that seems less arbitrary and influence-peddley. This one has very little going for it, so it’s better not existing.
That goes for the entire 529 plan idea, not just this K-12 expansion. People who apprentice or work their way up within a company should not be penalized for choosing that route towards contributing to society rather than a four-year college degree or one of a few select government-approved routes.
What Congress Should Do Instead to Foster School Choice
Education is the proper provenance of states and, ultimately, parents. There’s not much the U.S. Congress can do to directly encourage it, but there’s a lot it can do to indirectly encourage it and the environment that will help it flourish. Congress can take two major steps to encourage school choice in lieu of this ineffective 529 expansion: dramatically cut federal meddling in and spending on education, and dramatically increase the federal child tax credit.
The top thing the federal government can do to encourage school choice is get out of its way. Federal mandates, which always accompany federal education spending, are a major source of education bureaucracy at all levels and the child-harming education philosophies this perpetuates. Over its approximately 70 years of bossing around state education policies and schools, Congress has demonstrated nothing more resoundingly than that it doesn’t know a thing about teaching children.
Its chief accomplishment has been making U.S. education arthritic with centralized bureaucracy, which strangles every kind of schooling. No one has demonstrated this more thoroughly than research analyst Vicki Alger. Lawmakers and congressional staff should read her thorough dissection of federal education programs, invite her to consult with them on reform legislation, and follow her blueprint for ending its waste, fraud, and abuse.
Second, rather than advantaging high-income, type-A families with even more resources beyond their pre-existing earning power to get their kids into better schools, Congress should advantage all parents by increasing the tax reform bill’s child credit expansion by more than the plan’s current $600. As senators Mike Lee and Marco Rubio propose, it should be at least doubled, applicable to payroll taxes, and indexed to inflation.
This would be a more significant, less complicated, and less micromanaging way to help all families have the financial margins to choose private schooling, home schooling, or the higher local taxes of a better public school district. Tripling the current credit would be even better, as research on low-cost school choice programs called tax-credit scholarships find that about that amount per child can be enough to help more significant numbers of families access private schools. Congress could pay for this, for starters, by cutting and repurposing the annual $70 billion it spends on the U.S. Department of Education, and for which, as Alger demonstrates, taxpayers, teachers, children, and parents, have never gotten benefits that surpass its costs.