Posts Tagged ‘tax credit’

US Supreme Court: Scholarship Tax-Credits Are OK!

April 5, 2011

Supreme Court OKs Arizona’s Tax Break for Private Schools

Associated Press

WASHINGTON—A Supreme Court divided along ideological lines said Monday that ordinary taxpayers cannot challenge government programs that use tax breaks to direct money to religious activities.

The court ruled 5-4 in favor of an Arizona scholarship program for private schools that has mainly benefited religious schools in offering a dollar-for-dollar reduction in the income tax bill of people who participate.

The decision cheered supporters of school choice and dismayed civil libertarians who said it will be harder to use federal courts to claim violations of the Constitution’s prohibition on direct government aid to religion.

Justice Anthony Kennedy wrote the court’s majority opinion that held that the Arizona taxpayers who challenged the program have no stake in the dispute that would allow them to take their case to federal court.

For more than 13 years, Arizona has allowed residents to send up to $500 to a tuition scholarship organization that they would have otherwise paid the state in taxes on their incomes. The state has passed up nearly $350 million in income tax payments over the life of the scholarship program, and the bulk of that money has gone to private religious schools.

But because the program operates as a tax credit, instead of a direct appropriation of government money, “contributions result from the decisions of private taxpayers regarding their own funds,” Justice Kennedy said in an opinion that was joined by the four conservative justices.

The taxpayers who object to the program have no connection to the money involved, Kennedy said. The Obama administration argued aggressively for the outcome the court reached Monday; it also took the view that the challengers had no standing to sue.

In dissent, Justice Elena Kagan said the distinction was meaningless. “Appropriations and tax subsidies are readily interchangeable,” Justice Kagan said in her first dissenting opinion since joining the court in August. “What is a cash grant today can be a tax break tomorrow.”

And she predicted that lawmakers elsewhere would adopt the “roadmap” Justice Kennedy provided to subsidize religion without facing judicial review. The court’s other three liberal justices signed on to her dissent.

Supporters of the Arizona program said they hope that Justice Kagan is right. Monday’s ruling and a 2002 decision that upheld the use of vouchers “should give state legislatures wide discretion in adopting school choice programs,” said Tim Keller, executive director of the Arizona chapter of the Institute for Justice. The group represented both religious and secular scholarship organizations that receive the tax money.

“School choice programs are not about aiding religion. They’re aimed at helping individual families,” Mr. Keller said.

Monday’s ruling has no effect on the more common voucher programs. Arizona adopted its unusual arrangement because its state constitution prohibits direct aid to private schools, a lawyer for the state told the court during arguments in November.

The American Civil Liberties Union led the challenge to the program.

There is a general prohibition on taxpayer challenges to the government spending of tax revenue. But a 1968 Supreme Court decision created a narrow exception to allow for challenges to programs that promote religion.

In this case, the San Francisco-based federal appeals court agreed with the ACLU that the lawsuit could proceed under that high court ruling. Justice Kennedy’s opinion Monday said otherwise.

“It’s a very disappointing decision that ignores precedent, defies logic and undermines the role of the courts in preserving the core constitutional principle that government may not subsidize religion,” said Steven R. Shapiro, the ACLU’s legal director.

Mr. Shapiro said the only bright spot was that the court rejected a more significant outcome, overruling the 1968 decision.

Justice Antonin Scalia, in a brief opinion joined by Justice Clarence Thomas, urged the court to “repudiate that misguided decision.”

The consolidated cases are Arizona Christian School Tuition Organization v. Winn, 09-987, and Garriott v. Winn, 09-991.

Why a Universal School Choice Program instead of a Pilot School Choice Program?

July 31, 2009

A Universal School Choice Program gives all parents of K-12 students in Texas an opportunity to choose the best school for their children.

On the other hand, a Pilot School Choice Program only gives a special group of parents school choice, for example low-income parents whose kids go to inner-city academically unacceptable schools.

The Texas School Choice Movement has tried unsuccessfully to pass a pilot program for the last 15 years.  Those who promote a pilot program believe that the legislators typically opposed to school choice can be logically persuaded or emotionally shamed into voting for a pilot program because it is small, and it will help those families with the greatest need for school choice.

The pilot program supporters believe that once the “beachhead” of the pilot program is passed, then the “beachhead” can gradually be expanded toward a universal program.  A common analogy in political circles is “getting the camel’s nose under the tent.”  Once the camel’s nose is under the tent, the camel can easily pull the tent up with its nose.

This “beachhead” strategy might be right for naval invasion or pulling up a tent, but it doesn’t work in a political “war” against a powerful enemy, the teachers unions.  The pilot approach is about persuading or shaming legislators (not voters) into voting for your pilot.

Fundamentally, politics is “civilized war” waged with votes rather than bullets.  The fundamental source of power is committed voters, not “persuaded legislators”.  Time and energy must be focused on convincing voters, not legislators.  When the voters are committed to school choice, then it follows that the legislators will either be convinced or voted out of office. Dedicated voters are the army in political war. Like all armies, they must be motivated, educated, and organized.

But how do you motivate voters if there is no tangible benefit for their effort? A universal school choice program solves this problem, while a pilot program cannot.  When every parent in the “political army” is fighting for a school choice opportunity for their child, they are easily motivated.  Every parent has a “horse in the race”.

The teachers unions already have an army of committed voters. The army is public school employees.  Essentially, the school choice movement has to match our army of voters with its army of voters.  Whoever has the biggest, most dedicated, most organized voters wins.

There is an Wall Street Journal article by Howard Rich that makes my point more eloquently than I.

Why Education Tax Credits instead of Vouchers?

July 29, 2009

I believe that education tax credits are a better way to deliver parental choice in education than school vouchers for the following seven reasons.

With education tax credits,

1. the government doesn’t have to give up money that it already possesses,
2. the funds are never “public money”,
3. the government can’t use the money for other things besides education,
4. tax credits are well established public policy, currently being used to encourage energy efficiency, research & development, etc.
5. private schools will not fear accepting the scholarships,
6. only the funds of the taxpayer using the tax credit go to private schools, not other taxpayer’s tax dollars, and
7. the transition time, from the current system to a widespread school choice environment, is longer, thus making the transition smoother.

Here are the seven advantages in detail.

1.  Education tax credits keep the government from getting the school choice funds, while vouchers take money from the government after it has already received it.  During FDR’s administration in the 1930′s, the government knew that it would be difficult to depend on citizens to write checks to the government to pay for the new (in the 1930′s) payroll tax.  So FDR’s administration invented the payroll deduction system.  It knew that psychologically it is more painful to give up money that you already possess, than it is to not receive it in the first place.

Education tax credits are like payroll deduction for the government.  Since tax credits are deducted from your tax bill before you pay it, the government never has possession of the deducted tax dollars.

However vouchers are not like payroll deduction.  Tax bills are paid in full, so that the government possesses the tax dollars.  Then the government has to write a check (voucher) to the private school from the money that the government already possess.  Psychologically this is much more painful than tax credits.

2.  Education tax credits are never deposited in a government bank account, so the (deducted) money never becomes “public money.” All laws at the federal level (First Amendment) and at the state level (“Blaine” amendments), prohibit “public money” from being used in religious schools.  Since education tax credit money never becomes “public money”, then these laws don’t apply.  This makes education tax credits much easier to defend against litigation trying to strike down the law.  All current education tax credit programs in other states have withstood litigation trying to strike down the programs.

3.  Since the government never possesses tax credit dollars, it cannot use part of the funds for “overhead expenses.”  We all know that accounting procedures used by the government for keeping track of their “public money” are rather “creative.”  Most of the tax revenue that we pay gets lost in the government bureaucracy and is never seen again.  Tax credit dollars never fall prey to the bureaucracy because the government never possesses the money.

Since the government never possesses tax credit dollars, the program is valuable policy simply for shrinking the size of government, regardless of how the funds are used in the private sector.  Education tax credits provide the additional bonus of school choice, a desperately needed policy for the students of America.

4.  Tax credits are established pubic policy, whereas vouchers are not.  Examples of current tax credits are for corporate research and development expenses, hybrid car purchases, and energy efficient homes.  The only established policies remotely similar to vouchers are the GI Bill and food stamps, both of which are very distant relatives.

5.  Many private schools have expressed their fears of accepting voucher money, since it is “public money” to which the government can attach “strings” (restrictive conditions on receiving the funds.)  Education tax credit programs create “Scholarship Organizations,” which are private 501-c3 foundations which awards “private vouchers” (scholarships) to low income students.  Since this is private money coming from a private foundation, private schools will feel much more comfortable about accepting these funds.

6.  Sometimes opponents of vouchers object by saying, “I don’t want my tax dollars spent at XYZ School.”  However, tax credits completely preempt this argument.  When a particular taxpayer takes advantage of a tax credit, it is only his taxes that are being credited, not anyone else’s tax dollars.

7.  There is one aspect of education tax credits that, in the short run, can be perceived as a disadvantage compared to vouchers.  If voucher legislation is passed and qualifying families quickly become aware that vouchers are available, then the program can be used to help many students in a short time.  However, if tax credit legislation is passed, there are no scholarship dollars immediately available for low income families.  In addition to informing low income families about the program, the Scholarship Organizations must be established, and the taxpaying donors must be informed of the opportunity to take advantage of the education tax credit.  So the lag time, between passing the legislation to having it widely implemented, is much longer with a tax credit program.

But I see this “short-term problem” as a long-term advantage.  This long lag time for tax credits means that the opponents of school choice will perceive tax credits as a threat at some point in the future, while vouchers will be seen as an immediate threat.

A concern of the uncommitted voters is the “unknown transition period” from the current policy to a school choice policy.  For example, “What will happen to the kids who currently attend a public school that fails to compete in the school choice environment?”  Since tax credits have a longer lag time, the transition from the current system to a school choice environment is more gradual, which gives more time for public schools to adjust.

In summary, education tax credits have a clear advantage over school vouchers, and this is why my focus is on tax credits.  For more information about education tax credits, read this article by Adam B. Schaeffer at the Cato Institute.

Sasha Sidorkin’s Hyper-Vouchers: Analysis & Comparison to Other Proposals

July 20, 2009

This is an editorial by Dr. Alexander “Sasha” Sidorkin from the Dallas Examiner.com.   Dr. Sidorkin also has a book entitled Labor of Learning and a blog entitled “The Russian Bear’s Diaries”.

Hyper-Vouchers: A Radical Solution for American Education

Both New York City schools and Washington, DC schools have pilot programs that pay students to learn. Mexico and Brazil have programs that pay families whose kids go to school. This is, by far, the most radical, and the most promising solution to the educational underperformance of American kids. In my view, these programs are not radical enough, because the sums paid to kids are nowhere near to what the public spends on education.

In the fiscal year 2006, school districts in the United States spent an average of $9,138 per student. New York State’s average is almost $15,000, although the City’s expenditures are a little lower, at about $12,000 in the 2004/2005 academic year (the last available year). We’re talking very serious money. Just imagine that the money would be paid not to schools but to the families directly, if the children can demonstrate learning. If the family has the skills and motivation to teach their own kids, they pocket the whole $15,000 a year. If they cannot, they may hire a tutor or sign up with a school of some sort, and share the learning income with those schools or tutors. Pass a test – get paid.

This would put the incentives to where they belong – with students themselves. We can provide all kinds of incentives to teachers, but if children are not motivated, it is not going to work. Education is not consumption; it is hard work, and it benefits us all more than it benefits about half of all K-12 students. This is why we’re subsidizing it in the first place. We should treat learning as any other job: if the society as a whole benefits from basic education, and is willing to pay money for it, why not pay directly to those people who actually need to learn?  For the educational system to become more efficient, we must stop paying for attempting to teach, and start paying for proven learning.

Is it possible to implement? You bet. ETS and other testing agencies have decades of experience in administering tests on mass scale. Those tests do not need to be primitive testing of facts; they can include sophisticated measures of thinking, writing, and computational skills. Testing centers can be cheaply set up wherever there is internet access; each kid can have an account that keeps track of tests and of money paid to the student.

Will it leave behind poor children? Not at all; in fact, it will put resources into the hands of poor parents, and allow them to find the best educational solutions – with or without schools. We can also index payments in such a way that children with disadvantages such as poverty, non-native speakers, or with disabilities – receive higher payments than those kids with advantages. That will attract more talented teachers and tutors to poorer neighborhood, and create incentives for better specialized services for kids with learning disabilities.

Hyper-vouchers are the way to go. America has a history of radical, bold innovations. It has not been a part of our educational system for a while, but perhaps now is the time.

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Bob Schoolfield’s Analysis and Comparison to other Proposed Solutions

I am surprised the no one has commented on your radical (hyper-voucher) solution to the education mess.  Maybe they thought it was too preposterous (but I don’t) to comment on.  So I will bless you with a comment on your plan.

First, I will describe what I think are the differences between your plan and a traditional voucher plan.  I also want to compare your plan with the education tax credit plan advocated by the Cato Institute.  Then, I will give what I see are the advantages and disadvantages to each plan.

1. Hyper-voucher: The family is “paid” only if the child makes progress on an achievement test.
Traditional voucher: The family gets their voucher regardless of academic achievement.
Tax Credit: The family gets a “private scholarship” from a Scholarship Organization, which may or may not put some academic progress requirement on the scholarship.  The Scholarship Organization is funded by a dollar for dollar tax credit on the “ISD tax”.

2. HV: The family gets hard cash.
TV: The family gets an “education stamp” (like a food stamp) that can only be spent for school tuition and may need to provide proof of attendance.
TC: The family must provide receipts or proof of attendance to get from the Scholarship Organization reimbursements for family educational expenses or monthly payments directly to the school.

3. HV: Money comes directly from government. (public money)
TV: Also, money comes directly from government. (public money)
TC: Money comes indirectly through tax credits. (private money)

Next, the advantages and disadvantages of each system.

1. Hyper-voucher
Advantages:
A. There is a clear financial motivation for the student in partnership with the parents to work hard to meet the achievement test goal.

B. The family has the freedom to choose whatever means is best to achieve the test goal (no strings).

C. Because the state is providing the funds, the program can start in full force after passage.

Disadvantages:
A. How does the family finance the student’s education the first year?
Possible answers:
a. No government provision, i.e. attend public school or finance from family’s current resources.
b. First year the family gets “full pay” unconditionally.

B. How does the state avoid paying double?  If the state pays to educate student in public school, and the family gets paid when student passes the exam, then state has paid double.
Possible answer:
a. Attending public school disqualifies the family from being paid.  This is a strong disincentive for
attending public school and the exodus from public school will be more rapid.

C. There is a strong incentive for the state to make the achievement test very difficult so that they only pay a few families and force the rest back into the public schools.

D. If a student flunks the achievement test, what happens to the student?
Possible answers:
a. Family gets no pay and student must return to public school or be financed from family’s current
resources.
b. Rather than a pass/fail test, it could be a 0% – 100% test and the family gets the students percentage
grade of the “full pay” hyper-voucher.

E. Who designs the test?  Since the stakes of passing the test are so high, you have a temptation to “teach to the test” or even cheat, e.g. tester sells half the answers via a kickback.  Is only one test adequate in high school?  How about a “white collar” test and a “blue collar” test.

F. Will the teachers unions let it pass?  I think not.  If they won’t let vouchers be passed, to which they can attach all types of government strings, they are not going to let unrestricted hard cash out of their bank account with no strings attached.  They will hate it even more when they realize that families have a disincentive to stay in the public school system.  Either traditional voucher or tuition tax credits have a much better chance of passing.

G. The money come directly from a government account so it is “government money”.  Although U.S.Supreme Court has ruled favorably for government money to be used in a voucher system, there are still problems in state courts.  Many states have very restrictive language in their constitutions prohibiting any state funds going to any sectarian school.  These are called “Blaine amendment” after the senator that promoted them in the 1800′s.  Google “Blaine amendment” and you can study the historical context under which they were passed.  Texas has a Blaine amendment, although it is not as restrictive as most of the amendments.  Voucher programs in Florida, Colorado and two in Arizona have been struck down in state courts because of the Blaine amendments.

2. Traditional Voucher
Advantages:

A. Because the state is providing the funds, the program can start in full force after passage.

Disadvantages:
A. The family doesn’t have a clear financial motive to do well in school.  The traditional voucher has no academic restrictions.  Although this is an advantage to the HV, I think it is much less than Mr. Sidorkin believes.  I believe that the primary reason that parents are not involved in their child’s education is because they see themselves as powerless to have any control or ownership of their child’s education.  When the great majority of parents see that they can choose their child’s school, they will take ownership of their child’s education, become more involved, and make sure they get a good education for their voucher.  I believe that most parents don’t want an easy road for their kids such that the kids can’t take care of themselves.

B. The TV is much more likely to have “bureaucratic strings” attached to its redemption by a private school.  This would restrict the use of the TV money much more than the HV.  The HV has only one powerful “academic achievement string” making it less likely to get any other strings.

C. Will the teachers unions let it pass?  It’s much more likely to pass than the HV, especially if the unions can attach a lot of strings in the effort to get their tentacles into the private school industry.

D. The TV has the same “government money” problem that the HV does.

3. Educational Tax Credit
Advantages:

A. The most important advantage of the TC program is that the money comes from private donors, who receive tax credits for their donations.  This money is NOT PUBLIC MONEY.  It is clearly private money and is free from any attack based on the money being public money.  So far every tax credit program in existence has withstood every lawsuit raised against it.

B. The organizations distributing the scholarship money are a private charities, Scholarship Organizations.  Because there can be many such Scholarship Organizations, each can develop their own academic and/or attendance requirements using whichever test they choose.

C. Since the state is not distributing the scholarships, the families are more likely to have plenty of freedom to choose whatever means is best to achieve a quality education for their children.  Private schools will be much more comfortable receiving scholarships from a private charity than from the government.

D. Will the teachers unions let it pass?  Although any of these reforms will meet with teachers union resistance, I believe the TC program has the best chance of passing.  Why?
a. Because tax credits are a well established public policy vehicle.
b. The state doesn’t have to write a check to a family or private school.  It’s much more painful to give
up money that you already possess than to not get money that you anticipated getting.  That is why
payroll deduction works so well for collecting taxes.

Disadvantages:
A.  Because the state is not providing the funds, the program will start slowly and gain momentum over time.  The program has to be sold to donors and scholarship organizations have to be created.

(Advantage E.)  Actually the slow start has an advantage in overcoming teachers union resistance.  They also know that the program will start slowly and may or may not get real traction.  This slow start lowers the threat level of the TC program over the HV or TV.

In summary, I believe that the education tax credit program is the clear winner. I would give second place to the hyper-voucher with the huge disadvantage being that the teachers unions would NEVER let a hyper-voucher program pass the state legislature.  The traditional voucher comes in last.

Victory in Indiana, Pat Rooney’s State

June 30, 2009

Patrick Rooney, who died last September, was one of the early leaders to provide parents with educational choice.  He started the first private voucher program where funds from charitable donations are used to give “portable” scholarships (privately funded vouchers) to low income children to help them attend the private school of their parents’ choice.

This private voucher program became the forerunner of the “scholarship organization” which is the centerpiece of every tuition tax credit program.

Rooney did not live to see a school choice program enacted in his state.But today a tuition tax credit program has been enacted in Indiana.  During this celebration, let’s remember him and dedicate this victory to him.

Good News from Indiana

Taxpayers! Do you want to stop feeding the public sector? Then support tuition tax credits!

May 16, 2009

Support tuition tax credits, even if you are not that excited about school choice!

In the WSJ article entitled “Unions vs. Taxpayers“, Steve Malanga persuasively makes the point that public sector unions are the most powerful political force in government.  Their goal is to move the nation toward socialism.

If taxpayers are going to turn the nation around toward smaller government, they must cut the taxes going to the government trough that are feeding these socialists.

The most obvious way is to refuse to pay your taxes.  This approach has the inconvenient consequence of  having the IRS hot on your trail.  Is there a safer way to keep the tax money out of  the public sector?

Yes!  It is tax credits!  With tax credits, the money is still coming out of your pocket, but it stays in the private sector!

What is the biggest spigot that can be turned off with tax credits?  School Taxes!  How big is this spigot?  When you add state, local, and federal money going to public education, it is bigger than the defense budget!  State and local taxes make up more than 80% of this money.

How do we turn off this spigot?  Tuition tax credits are the answer.  With tuition tax credits, all your school tax dollars could be redirected to the private school sector before the public sector gets their greedy hands on it.  But you get a second benefit.

In addition to keeping the money away from the teacher unions, you allow private schools to teach the kids to be productive members of society, rather than preparing them to be wards of the state.

When those kids become productive members of society, they also become TAXPAYERS!  More taxpayers means more people that want smaller government.

If you want smaller government, the first place to start is with tuition tax credits, EVEN IF YOU LOVE YOUR LOCAL PUBLIC SCHOOL!

Grassroots Lession 1

March 13, 2009

Objective: Find out who your State Senator and State Representative are and print or save their contact information.

1. Use your internet browser (e.g., Internet Explorer) to go to this webpage

http://www.fyi.legis.state.tx.us/

2. Type in your address and click “Submit” button.

3. Print or Save this webpage as an MHTML Document.

(For Internet Explorer, look for the toolbar at the top of this window that has “File Edit View Favorites…”. Click “File”; then click “Print” or “Save As…”; find a folder where you want to save the document; change the name of the document (if you don’t like “Who Represents Me—Districts By Address”); then click “Save” button.)

The most important name on this document is the name of your “Texas State Representative”. It is after “Texas State Senator” and before “Texas State Board of Education Member”. Why? Because the State Representative district is the smallest district. Therefore your vote counts more, since there are fewer total votes.

If you finish this lesson, please send me a email so that I can know who has completed what.
Bob Schoolfield
bob@LetsChooseSchools.com

In the next lesson, you will call your State Representative. I will suggest what you can say over the phone.

Grassroots Lesson 2

March 12, 2009

Objective: Call your State Representative and State Senator

If you completed Lesson 1, you now know the names and telephone numbers for your State Representative and Senator. Now you will call them. When you call, there is only a 1% chance that you will talk to your legislator. 99% of the time you will talk to one of their staff. That is fine because the staff will keep a record of the call. That is one of their main jobs.

Please be polite when talking to the legislator or staff. They usually tune out angry callers. They don’t mind talking about opposing views as long as the conversation is civil. The staff is not the decision-makers so they are not responsible for any decision the legislator makes, so please be polite.

A typical call would include these items.

1. My name is ____________________.

2. I live in Representative/Senator ______________________ ‘s district. (Since you can vote for/against the legislator, your opinion is more important.)

(At some point the staff will probably ask you for your zip code. This helps them verify that you do live in their district.)

3. I would like Representative/Senator _________________ to support more charter schools, school vouchers, tuition tax credits, and any other bills that increase school choice. (This is a general request.)

4. I would like Rep/Senator _________________ to vote in favor of House Bill 465 (or Senate Bill 308 if he is a Senator.) (This is a specific request.)

(Currently law doesn’t allow more than 215 charter-school “charters” in Texas. That cap has been reached and there are 17,000 kids on waiting lists to enroll in charter schools in Texas. House Bill 465 removes the cap of 215, so there can be as many charter schools as the families need. Senate Bill 308 is identical to HB 465. It just has a different number because it was filed in the Senate.)

5. Is Rep/Senator __________________________

__ in favor of HB 465/SB 308? (This puts the legislator on the spot to commit.)(The staff will probably say that their boss has not had time to study the bill and make a decision. You can ask that you be called when he does make a decision. We will tell you if and when HB 465/SB 308 will come to a vote, so that you can call again to ask for a decision from your legislator.)

6. You can also include a personal story of how school choice has affected you or a neighbor, but keep it brief and to the point.

7. Thank you, __________________ for your time.

Please send a message to me after you finish so that I can know who has completed this lesson.
Bob Schoolfield
bob@ceoaustin.org

P.S. – You can call again in one or two weeks and your opinion will be counted twice. They receive many calls and have different staff. The next person to answer the phone will have forgotten that you called earlier.

Vouchers Help, not Hurt, Public Schools

March 2, 2009

Please read this excellent post by the Friedman Foundation that explains why vouchers help public schools, rather than hurt them.

DC Kids ask Obama to Save School Choice

March 2, 2009

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