These pieces originally appeared as a weekly column entitled “Lessons” in The New York Times between 1999 and 2003.
[ THIS ARTICLE FIRST APPEARED IN THE NEW YORK TIMES ON JUNE 20, 2001 ]
Vouchers dead, alternatives weak
To win bipartisan backing for his education bill, President Bush abandoned private-school-tuition vouchers for pupils in low-scoring public schools. He then pledged to find other ways to support private education choices.
The vow won’t mean much. Using public money for private school has little support, because it is so impractical: without vast spending (or politically inconceivable draining of dollars from public schools), there is no way to find enough federal money to enhance the appeal of private education.
The tax cut that Congress passed last month offers an example. The bill provides for tax-advantaged education savings accounts to help send children to private schools. That provision’s sponsor, Senator Tim Hutchinson, Republican of Arkansas, said it would enhance parental options and be “a potential floodgate” for private education.
Education savings accounts are like Roth I.R.A.’s, in which workers earmark after-tax savings for retirement and then don’t pay tax on earnings from interest, dividends or capital gains. Like the traditional I.R.A., the Roth I.R.A. has flopped: few of those eligible contribute to it.
Similarly, the school accounts, which expand a break previously allowed only for college savings, will have little impact. The provision allows after-tax savings of up to $2,000 a year to help pay the costs of private elementary and secondary school. If money is withdrawn to pay tuition or other school expenses, taxes will not have to be paid on the earnings.
If parents start saving at a child’s birth, they might build an account for five years before they have to start paying tuition. If savings earn 7 percent a year (a generous assumption), they will produce earnings of $2,307 in that time. For a family in the 28 percent tax bracket, the total tax savings would be only $646.
Incentives are yet smaller because private school fees almost always exceed $2,000. If they are $5,000, parents who are able to continue saving $2,000 a year (but no more) after the child begins school will immediately have to dip into the account to cover tuition, diluting the tax savings. By fifth grade, the account will be empty.
President Bush wanted a savings limit of $5,000 a year rather than $2,000. Earnings would then have been greater. But relatively few families can afford to save even $2,000, so the number of those making a full contribution would fall if the limit rose. And while the tax break is bigger in upper brackets, even there the benefits are so small that most families will not be spurred to switch from public schools.
Instead, the new accounts mostly subsidize wealthier families whose children already attend private school. Parents can also use the break to subsidize supplies for teaching at home, but the benefits are too small to stimulate home schooling.
President Bush’s other, more radical alternative would allow families to subtract private school costs from income taxes owed. Like vouchers, this tax-credit proposal would permit parents to pay tuition (up to whatever limit the provision sets) at no cost to themselves: taxes would be cut by the amount of private school fees. But unlike vouchers, tax credits mostly benefit the upper middle class.
The reason is that private tuition is more than most families’ income tax liability. The credit could help lower-income families only if it was refundable — that is, paid even to those who owed no taxes. But if the limit of the refundable credit was low (say, $2,000), few could afford the difference between the credit and tuition. If it was high (say, $5,000), it would be unaffordable to the Treasury if many families took it.
Advocates of credits also want to let philanthropists or corporations subtract from their taxes the amount of gifts to private school scholarship funds. This would cause the public cost of credits to explode, and would not solve other practical difficulties.
Unfilled private-school seats in urban areas are few (mostly in Catholic schools where parishioners have moved to the suburbs). But even at tax-subsidized tuition rates of $5,000, new schools could not afford to enter the market. Private companies operating public schools on contract now demand fees equal to what public schools spend. Before parents voted its bid down, the Edison company said it needed $10,000 a pupil from the New York City Board of Education to run a viable urban school. Such a plan could not be marketed privately to families who got tax credits of $2,000 or even $5,000 a child.
So like the savings accounts, tax credits would mostly benefit families with children already in private schools.
With the president’s push for vouchers dead for now, he and his allies are advancing alternatives. But so far, none of these plans compute. Until a better idea comes along, those wanting to improve education will still have to focus on public schools, not private, for reform.