Federal Tuition Tax Credit Proposals Gather Steam on Capitol Hill

Published June 1, 2006

As state tuition tax credit plans grow increasingly popular across the nation each year, the approach continues to gain steam as a vehicle for extending parental choice to families that otherwise couldn’t afford it. Two new proposals in Congress seek to give that time- and court-tested approach a crucial foothold at the federal level.

New York Rep. Vito Fossella (R) introduced in April his Tax and Education Assistance for Children (TEACH) Act of 2006 (H.R. 5230)–a new education tax credit plan that would offer each family credits of up to $4,500 per year for elementary or secondary school tuition against taxes owed. Fossella, a product of Staten Island public schools himself, has maintained a strong school choice track record throughout his five terms in Congress.

“The fact is that the school choice genie is out of the bottle and it’s working in Wisconsin, Arizona, Florida, and even the District of Columbia,” Fossella said in his announcement. “Those who continue to embrace a cocoon-like mentality only serve to smother incentive, stifle innovation, and cultivate mediocrity in education by defending the status quo.”

Fossella also noted that rising costs have forced many private and religious schools to close in recent years, as working families find it increasingly difficult to keep up with rising tuition prices.

Tax Breaks for Businesses

Meanwhile, Reps. Phil English (R-PA) and Charles Pickering (R-MS) announced in April their own federal tax credit plan for businesses making contributions to qualified scholarship organizations. Their Business Supporting Education Act (H.R. 4834) would offer businesses tax credits of up to $100,000. To qualify for the tax credits, contributions would have to be to scholarship groups that give at least 90 percent of their donations to students whose family incomes fall at or below 250 percent of the poverty line.

“By providing a common-sense tax incentive to encourage businesses in communities across the country to support education, this legislation will ensure that low-income parents also have the ability to provide the right educational resources for their children,” said English, a member of the House Ways and Means Committee, which has authority over tax issues.

The plan is similar in structure to Pennsylvania’s state tuition tax credit, which resulted in 25,000 scholarships granted during the 2004-05 school year. Florida also has a corporate scholarship tax credit plan in place, through which more than 11,000 scholarships were awarded in 2004-05.

Federal Dollars for States

Both bills were referred to the appropriate Congressional committees, where at press time observers viewed their near-term prospects for action as fairly remote.

The two new plans take their place alongside existing federal tax credit proposals, notably by school choice stalwart Reps. Trent Franks (R-AZ) and Ron Paul (R-TX). Franks’ Children’s Hope Act (H.R. 2347), covered in past issues of School Reform News, is designed to use federal dollars to encourage new state tax credits designed along the lines of Arizona’s highly successful scholarship model. It offers an additional federal credit of $250 or more for individuals who contribute to a state scholarship tax credit organization.

“Throughout my years working in public service, I have had a longstanding commitment to parental empowerment and educational choice,” Franks said. “I feel confident these efforts will help revitalize our nation’s education system and will truly offer the same educational opportunities to all of America’s families.”

Growing List of Sponsors

The Franks plan had assembled a bipartisan roster of 61 co-sponsors at press time, and school choice advocates expressed optimism that it could find a place in upcoming Capitol Hill budget negotiations.

Franks was instrumental in designing the Arizona plan as a state legislator in 1997. During the 2004-05 school year, 21,160 scholarships were awarded as a result of tax credits taken by families and individuals.

Paul’s more traditional model offers parents tax credits of $3,000 for each student for private, parochial, or homeschooling costs.

Don Soifer ([email protected]) is executive vice president of the Lexington Institute in Arlington, Virginia.

For more information …

The full text of the Tax and Education Assistance for Children (TEACH) Act of 2006 is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to http://www.heartland.org, click on the PolicyBot™ button, and search for document #19061.

The Businesses Supporting Education Act of 2006 is also available through PolicyBot™. Search for document #19062. “Children’s Hope Act: As DC Vouchers Move Ahead, More Rumblings and Grumblings on NCLB,” by Don Soifer, School Reform News, May 1, 2004, http://www.heartland.org/Article.cfm?artId=14802.