Federal Tax Benefits for Families' K-12 Education Expenses in the Context of School Choice

Publication Date: April 2003

Publisher: Library of Congress. Congressional Research Service

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Some believe that comprehensive reform of elementary and secondary (K-12) schools and districts is needed to improve the quality of education provided to the nation's children. Proponents of reform have called for, among other things, policies to encourage parents to select the public or private schools they deem most appropriate for their children, with federal assistance provided through school vouchers or education tax subsidies. For some, the authorization of tax benefits for K-12 education expenses beyond those already included in the federal tax code (e.g., Coverdell Education Savings Accounts (ESAs) and the deduction for charitable contributions to scholarship-granting organizations) would be a means of expanding school choice while minimizing some of the concerns that have inhibited the expansion of vouchers (e.g., church-state entanglement and regulation of private schools). Some proponents further argue that a new K-12 education tax benefit would be more effective than previously tried school reforms at providing students with better educational opportunities and at reducing existing inequities. Some opponents of expanded K-12 education tax benefits and of unregulated school choice argue that if enacted, such policies might undermine the current state of public education and might exacerbate existing inequities in the quality of education available to children of different segments of society.

Of the several proposals offered during the 107th Congress to either directly or indirectly provide assistance to families for the expenses they incur in enrolling their children in private and/or public schools, only the expansion of ESAs to cover K-12 education expenses was enacted into law. (The Committee on Ways and Means passed a tax deduction for such expenses; it would have amended the above-the-line higher education deduction.) Thus far in the 108th Congress, proposals have been offered that would provide nonrefundable and refundable credits for families' K-12 education expenses. The latter approach would allow eligible families with schoolage children to receive a tax benefit even if its value exceeded their regular tax liability -- the difference being provided to the family via a tax refund. Proposals to offer a nonrefundable credit to those who make contributions to school tuition organizations (STOs) that in turn use the funds to award K-12 education scholarships have been reintroduced as well.

A tax credit available to families incurring K-12 education expenses, or a credit dedicated to funding STOs, potentially would provide families with an incentive to send their children to private schools, including those who might have done so anyway. To target the tax benefit to families who might otherwise not have been able to exercise school choice, some proposals would establish an income ceiling for claimants or would restrict the credit to families with children assigned to failing public schools. While such bills likely would encourage school choice because tuition is one of many qualified education expenses, they also could make K-12 education in general more affordable for families by broadly defining qualified expenses to include such things as computer hardware and software, academic tutoring, and educational supplies.