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Taxing Times
A Service of the Utah Taxpayers Association |
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August 23, 2004
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Coming soon in future editions of Taxing Times:
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Subsidizing Private Schools . . . Opponents of parental choice in education are claiming that tuition tax credits are a subsidy for private schools and are therefore poor public policy. A closer examination of this claim reveals that this logic is faulty. The current public education system is a subsidy for most families. Most Utahns already receive a subsidized public education courtesy of high income Utah households and businesses. Most households do not earn enough income in their lifetime to pay enough taxes to educate their children in Utah’s public schools. In fact, if the value of a tuition tax credit, even a refundable means-tested tax credit, were less than the current per pupil spending amount, a tuition tax credit would be a smaller subsidy than the current public education subsidy which is largely financed by higher income households and businesses. Consider the following facts: • The top 1% of Utah households pays 17% of all state income taxes. When the economy is expanding and capital gains and dividends are plentiful, the top 1% pays at least 22% of all state income taxes. • The top 7% of Utah households pays nearly 40% of all state income taxes. • Typically 85% to 95% of total state income taxes are used to fund K-12 education with most of the rest being used for higher education. State income taxes cover 70% of school district operational (primarily instruction) costs and 56% of total costs including capital. • State income taxes spent per K-12 student per year are nearly $3,400. A typical household would need to earn $80,000 per year to pay $3,400 in state income taxes, the amount required to cover the income taxes used to educate one student. Since children attend public schools for 12.5 years (Kindergarten counts as a half year), a family with three children in public schools would have to earn $80,000 each year for nearly forty years to pay enough state income taxes to match the income taxes spent on their children’s education. Although many Utah households earn $80,000 per year for a couple of years when both parents are employed during their prime earning years, the overwhelming majority of Utah households do not earn an average of $80,000 per year for 40 years. A household living in a $200,000 house typically pays $825 each year in school district property taxes, including the statewide basic levy. However, Utah school districts spend $1,748 in property taxes per student per year. This $923 per student difference is subsidized by households with large homes and by Utah businesses. Businesses do not receive a 45% property tax exemption like primary residences and pay 44% of all property taxes in Utah. About 55% of property taxes are used for public education. The Spending Lobby correctly argues that businesses benefit from public education, but businesses also benefit from private education. The major premise behind taxpayer funding of public education is to force businesses and higher income wage earners to subsidize the education of the majority. If most households were perceived as being able to educate their children without subsidy, then government would not operate an educational system but would simply allow families to educate their own children at their own direct expense in the private sector. Government would then have a welfare program for the small percentage of families unable to cover their children’s educational needs, just like government does for food, housing, and health care. Therefore, to argue that tuition tax credits should be rejected because they are a “subsidy to private schools” ignores the fact public education is largely a subsidized endeavor. The Spending Lobby’s “Subsidy” Argument Would Apply To Aid for College Students Attending Private Universities Is the Spending Lobby prepared to argue that students at Notre Dame and BYU should be ineligible for Pell Grants and the GI Bill? If tuition tax credits are a subsidy to private schools, and therefore “bad” by implication, then Pell Grants for students attending private universities would have to be discontinued since these would have to be considered subsidies for the private universities. The Pell Grant/GI Bill analogy is especially applicable in the tuition tax credit debate. Instead of raising taxes and restricting viable student options to government-run universities, the federal government decided several decades ago to increase higher educational opportunities for lower and middle class students by offering financial aid directly to students who would then use these funds at a university of their choice, including private universities. The American university system is universally recognized as the world’s best, and a fundamental reason for the U.S. success in this area is a system of vigorous competition between public and private universities. Pell Grants and other forms of federal government aid to students is a component of the competitive environment. School choice is being implemented in other states and is gaining momentum in Utah. Policy makers and taxpayers are realizing that several decades of significant K-12 spending increases and class size reductions are not getting the job done. Due to Utah’s unique demographics, which will be discussed in a future edition of Taxing Times, Utah will never be able to reach the national per student spending average. Fortunately, policy makers are finally realizing that “spending our way out of the problem” won’t work and is not even an option. Utahns are increasingly favoring school choice as a means to improve education performance through competition and parental choice without raising taxes. Charter schools are a form of parental choice. Charter school enrollment, after a slow start, is finally starting to grow. Charter schools enrolled 537 students in 2000 and are expected to enroll more than 6,000 students in the coming school year. Projections are very optimistic for future growth as waiting lists for new and existing charter schools continue to add new students. Arguments against school choice continue to be refuted, such as the claim that charter schools and tuition tax credits “drain” funding from existing public schools due to fixed costs or “cream” the best students and leave the worst behind. Future editions of Taxing Times will address these claims. (To view a study refuting "draining" and "creaming" caused by vouchers visit utahtaxpayers.org ) Most observers are acknowledging that tuition tax credits are just a matter of time. It’s just a question of what the final legislation will look like. |
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