Topic: Education and Child Policy

School Choice Survives Repeal Attempt in New Hampshire … Again

School choice is safe in the Granite State.

This morning, the New Hampshire Senate Education Committee voted 3-2 along party lines against SB 204, a bill to repeal New Hampshire’s trailblazing scholarship tax credit law, which was the first in the nation to include homeschoolers. The repeal bill is likely to be rejected in a vote of the entire state senate later this week. A similar repeal attempt failed two years ago. Thus far, no state has legislatively repealed a school choice law.

Last month, the Cato Institute released a short documentary on the fight for school choice in the “Live Free or Die” state, titled “Live Free and Learn: Scholarship Tax Credits in New Hampshire.” You can watch the film here:

When Mean-Tested Benefits Rose, Labor Force Participation Fell

The U.S. job market has tightened by many measures – more advertised job openings, fewer claims for initial unemployment insurance, substantial reduction in long-term unemployment and the number of discouraged workers.  Yet the percentage of working-age population that is either working or looking for work (the labor force participation rate) remains extremely low.  This is a big problem, since projections of future economic growth are constructed by adding expected growth of productivity to growth of the labor force.

Why have so many people dropped out of the labor force?  Since they’re not working (at least in the formal economy), how do they pay for things like food, rent and health care?

One explanation answers both questions: More people are relying on a variety of means-tested cash and in-kind benefits that are made available only on the condition that recipients report little or no earned income.   Since qualification for one benefit often results in qualification for others, the effect can be equivalent to a high marginal tax rate on extra work (such as switching from a 20 to 40 hour workweek, or a spouse taking a job).  Added labor income can often result in loss of multiple benefits, such as disability benefits, supplemental security income, the earned income tax credit, food stamps and Medicaid. 

This graph compares annual labor force participation rates with Congressional Budget Office data on means-tested federal benefits as a percent of GDP.  The data appear consistent with work disincentives in federal transfer payments, labor tax rates and refundable tax credits.

Live Free and Learn: Scholarship Tax Credits in New Hampshire

For School Choice Week, Austin Bragg and I produced a short documentary that details the struggle to adopt and implement a scholarship tax credit program in New Hampshire. The program had to overcome a governor’s veto, a repeal fight and a lawsuit that went to the New Hampshire Supreme Court. We talked with three families that have benefitted from the scholarship program and people working to keep the program.

Cato’s Jason Bedrick has detailed the history of this program at length. He also played a key role in adopting and evaluating the results of the scholarship program in the face of sometimes less-than-civil opposition.

On Monday, we hosted an event featuring Jason and two other folks who played a key role keeping scholarships alive in New Hampshire where we discussed the potential for scholarship tax credits in other states with so-called “Blaine amendments.” And feel free to snag a free DVD of our short film while supplies last.

Georgia Has it Right on School Choice—Though on Too Small a Scale

Georgia has a schoalrship donation tax credit program that makes it easier for lower-income families to afford private schooling—if that’s what they think is best for their children. The program is so popular that the cap imposed upon it by the legislature was reached within the first few hours of January 1st, this year. Over at Education Next I argue today that raising the cap would do a lot of good for Georgia children.

Conflicted on 529s

If you like feeling conflicted, you’ll love being a libertarian thinking about President Obama’s recent proposal – and even more recent rescinding of that proposal – to essentially end 529 college savings plans. The President proposed killing the ability to use funds saved under a 529 plan tax free to pay for college, which would have gutted the program’s real value.

On one side, a libertarian should be aggravated by such a proposal. The goal certainly seemed to be income redistribution, generating new revenues from relatively well-to-do Americans and giving it to (presumably) less well-to-do Americans with free community college and expanded “refundable” tax credits. It also seemed intended to support a divisive, rhetorical war of the “middle class” vs. “the rich” (though certainly many people who use 529s consider themselves middle class). And unlike federal grants, loans, and those refundable credits that are often essentially grants for people who don’t owe much in taxes, 529s are about people saving their own money to pay for college, not taking it from taxpayers.

On the other side, libertarians – heck, everyone – should want a simple tax code that isn’t riven with special breaks, loopholes, and encouragements to do things politicians decide are worthy but which have massive negative, unintended consequences. And when it comes to higher education, those consequences are huge, including rampant tuition inflation, awful completion rates, major underemployment, serious credential inflation, and a burgeoning academic water park industry. And where does the federal government get the authority to incentivize saving for college in the first place? Not in the Constitution.

So how should libertarians feel about the demise of the President’s 529 plan? I guess a little sad, because the Feds simply shouldn’t be in the business of encouraging college consumption. Even more, though, they should feel angry, because we are so deep in a federally driven, college-funding quagmire.

Learning in the Live Free or Die State

In 2012, New Hampshire launched a bold initiative to advance educational freedom: scholarship tax credits.

The New Hampshire Opportunity Scholarship Act grants business tax credits worth 85 percent of those businesses’ contributions to nonprofit scholarship organizations that fund low- and middle-income students to attend private or home schools. More than 100 students received scholarships in the first year and the results were remarkable.

In a survey of scholarship recipients, nearly 97 percent of families reported being satisfied with their chosen school, including 89.5 percent who were very satisfied. Just a few months into the school year, more than two-thirds reported seeing measurable improvement in their child’s academic achievement. This is especially impressive because the scholarship recipients were among the most disadvantaged in the state. More than nine out of ten scholarship recipients were from families that had a household income low enough to qualify for the federal “free and reduced-price lunch” program, about $43,568 for a family of four.

Yet despite all that, the scholarship tax credit law faced both a repeal effort in the legislature and a bitter lawsuit that went to the state’s highest court. The law survived both—much to the relief of the scholarship recipients—but not without doing great harm. During the period of uncertainty that the repeal effort and lawsuit created, donations to the Network for Educational Opportunity, the state’s sole scholarship organization, fell from about $130,000 to just over $50,000. The reduction in funds meant a significant reduction in the number of scholarship recipients, a drop from 103 to just 40.

In the second year’s scholarship recipient survey, 80 percent reported seeing measurable academic improvement in their child since participating in the scholarship program. It’s a shame that so few students had access to those scholarships. Opponents of the scholarships have vowed to bring another lawsuit and eight legislators are once again sponsoring legislation to repeal the law. The struggle for greater educational freedom continues.

Tonight at 8 p.m. EST, in celebration of National School Choice Week, the Cato Institute will present Live Free and Learn: Scholarship Tax Credits in New Hampshire, a short film detailing the struggle over New Hampshire’s scholarship law and some of the families it has touched. After the film, please join us live online and on Twitter at #CatoConnects for a discussion the politics, policy, and constitutionality of scholarship tax credit laws with former NH state senator Jim Forsythe, Institute for Justice Senior Attorney Dick Komer, and yours truly.

Families participating in New Hampshire’s pioneering scholarship tax credit program report near-universal levels of satisfaction because it enables them to choose the best educational fit for their children. Whatever parents are seeking for their children—improved academic performance, more engaged teachers, social acceptance, freedom from bullying, special needs programming, and so on—they are more likely to find it when they have more than one choice. Policymakers across the country who are seeking to expand the educational choices available in their state should look to New Hampshire as a model—then perhaps students from all states will have the opportunity to live free and learn.

Parents and Taxpayers Want More Educational Choice

Ever since Georgia enacted a scholarship tax credit law in 2008, individual and corporate taxpayers in the Peach State could receive dollar-for-dollar tax credits in return for contributions to nonprofit scholarship organizations—at least until the $58 million cap is reached.

Donors are eligible to receive credits starting on January 1st of each year. In 2012, the last of the credits were claimed in mid-August. The following year, donors hit the cap in May. Last year, they hit it in just three weeks. This year, all the credits were claimed within hours of becoming available on January 1st. In fact, taxpayers applied for more than $95 million in credits, $37 million more than the cap.

Scholarship families are highly satisfied. In a 2013 survey of families receiving scholarships from Georgia GOAL, 98.6% of respondents reported being “very satisfied” or “satisfied” with their chosen school.

Clearly, both the demand for scholarships and the willingness of taxpayers to support scholarship students have grown far beyond what the law currently allows. It’s time to raise the cap. Georgia legislators considering pending legislation to raise the cap to $250 million should be encouraged by two additional facts. First, the best evidence suggests that the tax credit law saves money by reducing expenses by more than it reduces tax revenue. Second, two-thirds of Georgians support the scholarship tax credit law. In other words, it’s good policy and good politics.

In other states that cap the amount of scholarship tax credits available—such as Florida, Pennsylvania, and Rhode Island—donors consistently hit the cap each year. Two recent exceptions—New Hampshire and Alabama—highlight the adverse effects of lawsuits on fundraising. After anti–school choice activists sued to block New Hampshire’s Opportunity Scholarship law, donations dropped off precipitously because of the uncertainty about the law’s future. Fortunately, the state supreme court unanimously rejected the challenge last summer, so we should expect a significant increase in donations this year.

In Alabama, scholarship organizations raised only half as much in 2014 as they did in 2013 because of the uncertainty created by government education establishment’s legal challenge. The lawsuit is likely to meet the same end as similar lawsuits in Arizona and New Hampshire, but the plaintiffs are harming thousands of children while the case is being litigated.