Tag: tax credits

9th Circuit Imitates Marcel Marceau

Last month, I warned that the 9th Circuit Court of Appeals would soon be handing the school choice movement a legal setback. Well, it’s here.

As expected, the 9th Circuit has reinstated a lower court challenge to Arizona’s scholarship donation tax credit program. The program allows taxpayers to contribute to non-profit Scholarship Tuition Organizations (STOs) that provide financial assistance to families choosing private schools. The taxpayers can then claim a dollar for dollar credit for their donation.

While this ruling leaves the program intact for the time being, it would almost surely require the tax credit program to be amended if it is allowed to stand. Fortunately, as I noted in my earlier post, the 9th Circuit is overturned as often as a caber at the Highland Games. Its ruling is unlikely to stand if appealed to the U.S. Supreme Court.

At issue is the fact that taxpayers are free to choose the STOs to which they donate their money, and private STOs are free to set criteria for the schools at which their scholarships can be redeemed. There are thus some STOs that offer scholarships only to religious schools. This is essentially the same situation that obtains when taxpayers claim deductions for contributions to non-profit charities. The charities can legally be religious or secular, and they can infuse the services they offer with religion, or not, as they choose. The whole thing is constitutional because it is the taxpayers, not the government, that decides which charity gets their funds. This is all settled law.

To get around the fact that the legal precedents were against it, the 9th Circuit decided to do a compelling impression of Marcel Marceau, pretending to hem itself into an invisible legal box. Specifically, the 9th Circuit decided to pretend that the constitutional restrictions limiting government expenditures (as in school voucher programs) also apply to the private funds at issue under tax credit programs.

That box, of course, does not exist. No government money is spent under the tax credit program, and the tax credits are themselves available on an entirely religiously neutral basis, in scrupulous conformance with the Establishment Clause of the First Amendment.

So here’s my next legal prediction: the constitutionality of the Arizona education tax credit program will ultimately be upheld by the U.S. Supreme Court, and opponents of educational freedom will have to resort to some new ploy in their efforts to herd American families back onto the public school plantation.

Obama Tax Policies and Beyond

I was a panelist for a Tax Notes forum on April 3 regarding Obama’s tax policies. The other panelists were Len Burman of the Urban Institute and Gene Steuerle of the Peterson Foundation. It was an expert and ideologically diverse panel, but nobody was fond of Obama’s fiscal policy direction. (In the photo, that’s former CBO director Rudy Penner to my left. Photo credit to Derek Squires)

Tax Notes summarized the discussion: “A diverse panel of economists and tax specialists largely agreed … that President Obama’s tax and budget plans at best would fail to forestall long-term fiscal ruin and could even hasten its arrival.” One point of agreement was that the tax code is too complex and it doesn’t need the complicated new tax credits that Obama has proposed.

Where we differed was on the need for added federal revenue, and herein lies the big tax policy battle ahead. Len thought that some form of new value-added tax (VAT) was inevitable in order that the government could  raise more money. I am increasingly hearing that argument from top fiscal scholars, and I fear that the drumbeat for a VAT will get louder.

Dan Mitchell and I are dead-set against a VAT because it will be a tool to fund even larger government, as we discuss in Global Tax Revolution. But supporters of limited government need to start watching this issue and making preparations to ward off a Euro-style money machine.

Vouchers Defeated in AZ. Freedom Can Still Prevail

The Arizona Supreme Court has just struck down two voucher programs serving disabled and foster children. This is a terrible blow to the families involved, but there is a way to continue offering them educational freedom: incorporate them into the state’s popular education tax credit programs.

Arizona residents and businesses can already make donations to non-profit scholarship funds and receive a tax credit for their donations. If the caps on those credits are raised, it will be possible to generate enough funding to serve the students formerly participating in the voucher programs. It would even be possible to create non-profit scholarship funds that specifically focus on serving special needs students, which could help parents choose the schools best suited to their individual children’s needs, and allow donors to know that their funds would go toward that cause.

While the Court has said that vouchers are impermissible in Arizona, it has already upheld the state’s tax credits that accomplish the same ends entirely through voluntary action. It is a solution that should satisfy everyone.

Everyone, that is, who has the best interests of children in mind.

Stop Wasting $Billions; Expand School Choice

The Philadelphia school system will spend over $3 billion for the first time next year. That works out to $18,500 per student in a failing school system and most likely leaves out significant costs like teacher health and retirement funds. Maybe it has something to do with the 84 administrative departments burning through funds that should be used to educate children.

In 2007 I highlighted the growing spending insanity in Philadelphia schools and noted that tens millions of dollars could be saved every year through even a small school choice program.

Pennsylvania’s small, successful, and popular donation tax credits system for private scholarships is already saving money and children from failing schools.

In this economy, Pennsylvania can’t afford not to have more school choice.

Why Vouchers?

Yesterday a universal voucher bill heavily promoted by state Sen. Eric Johnson died in the Georgia legislature.

I can’t understand why anyone continues to push for a brand-new voucher program when they already have a universal education tax credit.

Tax credits are more popular and pose less of a threat to private schools and homeschoolers than vouchers, and Georgia already has a tax credit program. All they need to do is lift the cap on available tax credits, which is set at $50 million.

School choice programs actually save money — billions of dollars in fact — so there is no sense in capping the program, especially during an economic downturn.

And there is no sense in pushing for a new, inferior policy when you can focus your efforts on increasing funding for an existing law.