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a division of Home School Legal Defense Association
April 6, 2001

Three Ways Congress Can Change The Tax Code To Improve Education

America's public schools have failed. Nearly 40 percent of our 4th graders read below the basic level on national reading tests; in math and science, our 12th graders score among the lowest in the industrialized world; and one-third of all incoming college freshmen have to enroll in remedial reading, writing or mathematics classes before taking regular courses.

Rather than subsidizing the smorgasbord of unsuccessful federal education experiments and continuing to feed America's failed public school system with federal dollars, Congress should return to the bread-and-butter of successful education—local control and parental empowerment. If the federal government is truly interested in improving elementary and secondary education, they should find alternatives to the unconstitutional system of providing federal grants to the states. Educational tax incentives are an alternative that would empower parents and teachers—giving them a greater ability to concentrate dollars where they can best be used.

To improve our nations education system and enhance parental choice, HSLDA urges Congress to adopt the following three education tax incentives currently being considered in Congress.

Education Tax Credits

Championed by home schoolers and education conservatives, this tax incentive would provide the ultimate in local control—parental choice. Two states (Illinois and Minnesota) have already implemented successful educational tax credit laws. Tax credits allow parents to spend dollars on their child's education and reduce—dollar for dollar—their payable taxes up to a set amount. A federal tax credit would not only benefit parents but also motivate them to invest in their child's education. Increased parental involvement will only improve educational choice and excellence.

In the 107th Congress, Senators George Allen (VA), John Warner (VA), and Larry Craig (ID) along with Representative Eric Cantor (VA) have introduced legislation that would provide a $1000 per child tax credit for educational expenses. The Senate version (S. 488) limits the total credit to $2,000 per family for expenses on tutoring and computer technology or equipment. The House version (H.R. 257) is more generous. It does not limit the number of credits per household but gives a up $1000 per child education expense tax credit for every qualified child. Qualified expenses include tuition and fees, books, academic tutoring, special needs services, computers and computer equipment, and educational supplies. All expenses must be academically related.

The Arizona Supreme Court has already established that tax credits are constitutional and meet the requirements of the U.S. Supreme Court's Lemon test. This test establishes three requirements that every law must meet: 1) it must have a secular purpose, 2) its primary effect must neither promote nor inhibit religion, and 3) it must avoid excessive government entanglement with religion.

Tax credits are hands-off solution to education reform and a sounder alternative to educational vouchers. Vouchers involve government distribution—tax credits are bureaucrat-free tax incentives.

President Bush's "No Child Left Behind" educational proposal does not include tax credits.

Education Savings Accounts

Vetoed twice by President Clinton, these common sense accounts would allow parents to save for a child's elementary, secondary, or college education without paying taxes on the interest earned. The concept is similar to the increasingly popular Roth IRA: Just as the government created an incentive for individuals to save for retirement, Education Savings Accounts create a tax incentive for parents to save for their children's K–12 educations. As with the Roth IRA, taxes are paid up front on the contribution amount, but the interest accumulates tax-free.

The Education Savings Account introduced in the 106th Congress would have expanded existing college-only savings accounts by increasing the maximum annual contribution from $500 to $2,000. This year, President Bush has proposed increasing that contribution cap to $5,000. Senators Tim Hutchinson (R-AR) and Robert Torricelli (D-NJ) recently introduced ESA legislation that would expand current college ESAs to include elementary and secondary expenses—up to $2000 per child per year.

Currently, Hutchinson and Torricelli's proposal does not include home schoolers. However, Senator Hutchinson told HSLDA that an agreement has been made to add home schoolers through the amendment process.

Education savings accounts would benefit all students—public, private, and home school—by providing the resources children need to excel academically and encouraging parents and other interested adults to participate directly in each child's education.

Teacher Tax Credits

An important component of President Bush's new plan, teacher tax credits would provide tax incentives for teachers who spend dollars on the educational welfare of their students. Mr. Bush proposes that teachers should "be able to make tax deductions of up to $400 to help defray the costs associated with out-of-pocket classroom expenses, such as books, school supplies, professional enrichment programs and other training."

The Bush plan does not define who would qualify for this deduction—public, private or home school teachers. However, the Bush staff has indicated that they are considering including home school teachers (parents) as part of their teacher tax credit. Two teacher tax credit bills currently in Congress (H.R. 703 and S. 225) provide up to $1000 teacher tax credits, but do not include home school teachers as qualified recipients of this credit. HSLDA is working to change this.


While enacting these measures will not solve the underlying problem of unconstitutional federal involvement in education, it would be a step in the right direction. Education tax credits, education savings accounts and teacher tax credits are constitutional incentives that will enhance local control and empower parents to improve their child's education.

For further information on this please contact Caleb Kershner, Manager of Federal Policy & Research at the National Center for Home Education. 540.338.7600, 540.338.8606 (fax),