Improve Education Tax Benefits


Editor’s note: This is one policy proposal in a symposium that appears in the February 9. 2009, issue of National Review. Specific policy ideas from the symposium will continue to appear on National Review Online throughout the week.

Americans have always viewed education as the best ticket to the middle class and beyond. And in today’s global economy, Americans must increase their investment in education, just as some of our major foreign competitors have done. For instance, Chinese consumers spent $72.6 billion on education in 2007, which is 62 percent more than they averaged in the previous five years, according to Euromonitor International.

To date, most conservatives have viewed education as a second-tier policy issue, and the results of this neglect are clear. The standard conservative education platform of school choice, block grants to the states, and abolishing the Department of Education has little appeal to middle-class suburban voters, especially independents. Here’s an idea that would: a universal education tax deduction.

The current tax code includes preferential treatment for investments in physical capital, such as plant and equipment spending, but not for investments in human capital, such as education — even though both forms of investment contribute to productivity and economic growth. Under a universal education tax-deduction plan, taxpayers would be allowed an unlimited above-the-line deduction for certain qualified tuition and related expenses incurred by students attending primary, secondary, and post-secondary institutions, and for certain expenses related to home schooling and tutoring. To ensure that low-income families also benefit from such a tax plan, a refundable tax-credit component could be added.

Ideally, taxpayers would be allowed a dollar-for-dollar tax deduction for all qualifying expenses. However, given the exploding budget deficit, policymakers could offset the plan’s revenue cost by reducing or eliminating a number of redundant education tax provisions in current law, such as the exclusion for employer-provided education assistance, a deduction for qualified higher-education expenses, the Section 223 special deduction for teachers, tax exemption for scholarships, the HOPE credit (created under Bill Clinton), and the Lifetime Learning credit, among others. Ending these education-related tax preferences would generate about $7 billion annually. It would also simplify the tax code by eliminating duplicative education tax programs, which are often riddled with complex rules and regulations, in favor of a simple tax deduction for all educational expenses available to all taxpayers.

From a policy perspective, this proposal would do the following: provide neutral tax treatment for education expenses, thus recognizing the investment nature of education; increase the level of federal education support without expanding federal bureaucracies; enable parents to make better educational choices for their children; make higher education and continuing education more affordable; and simplify the tax code for millions of taxpayers.

Politically, a universal education tax deduction would have great appeal to the broad middle class; it would energize conservatives behind tax relief for parents who send their children to private schools or home-school them; and, more important, it would win over parents who are scrimping and saving so that their kids can go to college.

— Cesar V. Conda was assistant for domestic policy to Vice President Dick Cheney and senior economic-policy adviser to the Mitt Romney for President campaign.


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