President Bush is suggesting using tax policy as a solution for a problem he couldn’t solve with education policy last year: providing an opportunity for students in underperforming public schools to attend private schools. However, his plan to implement education tax credits will face significant challenges in Congress due to the contentious politics surrounding government-funded school vouchers. Some opponents argue that the proposal, which includes refundable credits that can be used as cash grants for certain families, raises constitutional questions similar to those surrounding vouchers for religious school tuition. The U.S. Supreme Court is set to consider this matter next week.
As part of the White House budget plan for fiscal 2003, President Bush is proposing a federal income-tax credit of up to $2,500 to assist families in transferring a child from a public school identified as failing under the Elementary and Secondary Education Act. Parents who choose to send their child to a private or another public school would receive a credit on their tax returns, equal to 50 percent of the first $5,000 in tuition, fees, and transportation costs. This credit can also be used to offset expenses related to private tutoring, books, and computers to enhance the child’s education. The White House estimates that this credit would cost the U.S. Treasury approximately $3.7 billion over a span of five years. Since the credit is refundable, parents who do not earn enough to owe income taxes would receive cash directly from the federal government.
"I think we’re aiming to provide an opportunity for the students who are trapped in failing schools to escape," said Eugene W. Hickok, the Department of Education’s undersecretary, at a press briefing on February 4. "This is in line with the president’s principle of offering more options and opportunities."
"This proposal is different from the school choice provisions that were initially presented about a year ago," added Mr. Hickok. "Those provisions sparked a vigorous debate, and we anticipate a similar debate on this. Hopefully, we will succeed." However, many Democrats, who currently hold the majority in the Senate, are not enthusiastic about the idea. "At first glance, it appears to be a covert method of funding school vouchers through the federal Treasury, a concept I do not endorse personally," said Sen. Bob Graham of Florida, who serves on the Finance Committee responsible for tax policy. "What he is doing undermines the core commitment we need to make, which is to improve the quality of public education," added Sen. Christopher J. Dodd of Connecticut. Nevertheless, not all Democrats are entirely opposed to the idea. Sen. John Breaux of Louisiana, who often acts as a mediator between the parties and is also a member of the Finance Committee, expressed support for the concept. However, he cautioned that the feasibility of any of these initiatives would depend on whether sufficient funds are available to implement them.
This proposal represents a modified version of President Bush’s earlier plan presented last year during the reauthorization of the Elementary and Secondary Education Act, the main federal law for K-12 education. The original plan would have allowed students in failing schools to use a portion of the school’s federal Title I aid to help cover private school tuition. However, due to strong opposition from Democrats, the administration abandoned this idea. Nevertheless, Congress did agree to other components of the president’s plan. The new law permits parents of students in failing schools to use Title I funds for private tutoring or transportation expenses to another public school. These provisions in the "No Child Left Behind" law signed by President Bush last month aim to increase pressure on states and districts to improve underperforming schools and offer families new choices when schools fail to make progress. Now, the president wants to leverage the tax code to support a wider range of school choice options. Some experts predict that this latest initiative will merely result in a repetition of the unsuccessful attempts made last year. "It seems highly unlikely that many opinions have changed since then," commented William A. Galston, a professor at the University of Maryland’s school of public affairs and an education adviser to Vice President Al Gore’s 2000 campaign. "Even if the approach is different, the debate will be the same."
"Parents from low-income backgrounds living in underprivileged communities with struggling schools should have the same options for their child’s education as wealthier parents," they stated. Mr. Hickok from the Department of Education anticipated that most eligible families would have low or relatively low incomes due to the connection between such incomes and students attending underperforming schools. However, the proposal is not based on means-testing. To be eligible, a family’s child would need to have attended a failing school in the same year or be scheduled to enroll in the following fall.
In addition to the tax proposal, the administration has introduced two new provisions in the proposed Education Department budget for fiscal year 2003 to expand the choices available for schooling. These provisions allocate $100 million to assist charter schools in acquiring or renovating facilities and $50 million for a school choice demonstration program which might include limited private school vouchers.
Congress may not be the sole obstacle to government support for private school tuition. On February 20, the Supreme Court is scheduled to hear a case examining tuition assistance for Cleveland students attending religious schools.
Is it Constitutional?
Both the White House and other supporters of the tuition tax credit argued last week that it would unquestionably pass constitutional scrutiny. Clark M. Neily, a senior lawyer at the Institute for Justice, stated that such a credit would be upheld under the Supreme Court’s 1983 ruling in Mueller v. Allen. This decision ruled in favor of a Minnesota law allowing parents to deduct certain educational expenses, including tuition at private religious schools, from their state tax returns.
"There is no reason to believe that there is a constitutional distinction between a tax deduction and a tax credit that covers tuition at religious schools," argued Mr. Neily, whose legal group in Washington defends vouchers and other forms of school choice. However, other groups disagree. Americans United for Separation of Church and State, also based in Washington, stated that the administration’s proposal would essentially be government-funded 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." The ability for parents to direct government tuition aid to religious schools is the focal point of the Cleveland voucher case. If the voucher program is upheld by the Supreme Court, it is likely that a federal tuition tax credit would also withstand scrutiny, according to Mr. Neily. However, if the voucher program is struck down, there might still be room for the tax-credit approach.
Several state courts have upheld tax credits that cover private school tuition. Last year, two mid-level appeals courts in Illinois upheld the state’s $500 tax credit for qualified educational expenses, which includes tuition at religious schools. These courts cited the Mueller ruling in their decision. In 1999, the Arizona Supreme Court upheld a $500 state tax credit for contributions to scholarship programs for private school tuition, despite the fact that most scholarship recipients attended religious schools. The majority on that court, with a 3-2 vote, dismissed arguments that a tax credit raised more significant constitutional concerns compared to the tax deductions upheld in Mueller.
A tax credit is directly deducted from the amount of tax owed, while a deduction is subtracted from a taxpayer’s gross income, reducing the amount on which taxes are assessed. However, the dissenting judges in the Arizona case argued that there is a crucial 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," according to the dissenting opinion.
