Carolina Journal News Reports

N.C. House Democrats Reject Education Tax Credits

Teacher union opposes opposes moves to expand parental choice

Jul. 7th, 2010
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[EDITOR'S NOTE: This story has been edited to remove an inaccurate characterization made by one of the sources interviewed.]

RALEIGH — On June 3, Democrats in the North Carolina House rejected an amendment that would have allowed the General Assembly to consider the creation of an education tax credit enabling low- and middle-income students to escape their assigned public schools.

The credit, of up to $2,500 a year per child, would help parents offset some of the additional expense of seeking alternatives, including homeschooling, private schools, or public schools that charge tuition.

To qualify, students must be younger than 18 and they must have been enrolled in public school the previous school year.

Supporters of parental choice in education applaud the tax credits. “This bill gives families hope,” said Lyndalyn Kakadelis, director of the North Carolina Education Alliance. “The most helpless feeling for parents is having a child stuck in failing schools but lacking the resources for an alternative.” The alliance produced a report lauding credits as a cost-effective way to provide K-12 students who are struggling in their assigned public schools additional choices. The report also says tax credits — which are valued at less than the average amount schools spend per pupil — actually save taxpayers money and allow public schools to reinvest the savings.

On the other hand, the North Carolina Association of Educators, the state’s largest teacher union, opposes the bill. The association balks at letting parents opt out of their assigned public schools while providing financial assistance for those who do. Brian Lewis, the association’s government relations manager, told Carolina Journal: “The state owes the children of North Carolina an education and, while parents dissatisfied with a school have the right to purchase goods and services from the private sector, the taxpayers of North Carolina shouldn’t have to pay for private education or home schooling through tax credits or vouchers.”

Since the first education tax credits were enacted in Minnesota in 1955, six other states have adopted similar incentives, the alliance reports. Another five have allowed tax incentives to individuals who donate to nonprofits that provide scholarships for low-income children to attend schools of choice.

The report also states that tax credits would save states millions of dollars that could be reinvested in traditional public schools. Both the U.S. Supreme Court and state supreme courts have upheld education tax credits, and opponents of school choice have lost all recent cases challenging the constitutionality of tax credits.

House Bill 1988, “Tax Fairness in Education,” would have allowed North Carolinians who choose to educate their children in a home school, private school, or public school that charges tuition an individual income tax credit of up to $1,250 per eligible child per semester or a maximum of $2,500 for a full academic year starting in FY11-12. During 2010-11, the maximum credit would be $1,250.

Tax credits save money

Education tax credits would not take money away from public schools as opponents have alleged. The nonpartisan Fiscal Research Division of the General Assembly estimates this bill’s passage would create a net permanent savings to state and local governments of $51 million each year, beginning in fiscal year 2011-12 and each subsequent year.

The savings to taxpayers would result from the lower costs school districts would pay for the students who leave their assigned K-12 schools. Fiscal Research estimated 11,521 students would take advantage of the tax credit per year. The typical student in the public school system costs North Carolina taxpayers $6,935 each year — 277 percent more than the $2,500 cost of the individual tax credit.

Enrollment would be limited to taxpayers whose state taxable income is less than $100,000 (married, filing jointly), $80,000 (head of household), $60,000 (single), or $50,000 (married, filing separately).

“Democratic lawmakers won’t pass the bill this year because it’s an election year,” said House Minority Leader Paul Stam, R-Wake, a primary sponsor of the bill. “They’re beholden to teachers’ unions, and 99 percent of the money they give to politicians in North Carolina goes to Democrats.”

“The legislature has been hostile to charter schools this year,” Stam added, “and this is just another example of how Democrats, backed by union money, fight school choice.”

Gaming the system?

The NCAE’s Lewis worries that “the system [could] be easily gamed because a parent [could] remove a child who has attended a public school for only one or two semesters and receive a refundable tax credit for enrolling the child in a home school or private school.”

The tax credits would be paid for up front by reducing economic development spending by $34 million. “On its own, this bill provides better economic development for the state than the best corporate deal,” Stam said, “because children have a better chance to succeed and the state and local governments realize millions of dollars annually in permanent savings.”

The Fiscal Research Division predicts greater long-term savings to state and local governments in future years as more eligible students enroll in the program and parents take advantage of the tax credits.

Lewis said the purported savings would not materialize. Moreover, an earlier version of this bill included tuition vouchers, which the NCAE does not support. This tax credit, he added, just “smells like a voucher.”

Kakadelis supports the bill while adding that she’d also like to see legislation offering reversible tax credits or some other way to help cash-strapped families get the money quicker. Otherwise, she said, they may not be able to take advantage of the tax credits.

For those families, Stam said the best solution might be for them to adjust their income tax withholding, or accountability could become an issue.

After the first two years, Stam said, the law would phase out the requirement that students qualifying for tax credits would have to be enrolled in a public school the previous year. This would allow parents of students who’ve never been in public school to take advantage of the credits.

Stam plans to reintroduce the bill next year and says he is confident it will pass.

Karen McMahan is a contributor to Carolina Journal.