Posts tagged ‘tax policy’

May 22, 2015

New York Governor Cuomo pushes tax credits for private schools

by Grace

New York Governor Cuomo has proposed a “Parental Choice in Education Act”, a $150 million tax credit benefiting private schools.

… The Act provides for $150 million in education tax credits annually that will provide:

  1. Tax credits to low-income families who send their children to nonpublic schools,
  2. Scholarships to low- and middle-income students to attend either a public school outside of their district or a nonpublic school,
  3. Incentives to public schools for enhanced educational programming (like after school programs); and,
  4. Tax credits to public school teachers for the purchase of supplies.

It’s no surprise that teacher unions oppose these proposals, while religious leaders support them.  The outlook is uncertain for passage, and the outcome may give a clue about the strength of the school choice movement in New York.

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February 2, 2015

How the ‘middle class’ saved 529 plans

by Grace

Why did President Obama do such a quick about-face on 529 plans, first proposing to eliminate them and then a few days later dropping that proposal?  Although it was widely believed that this initiative had zero chance of getting through Congress, it appears Obama’s actions were due to the efforts of the elusive “middle class”.

Several news sources have pointed out how poorly this proposal polled, notably with Democratic voters.  It seems the administration could have predicted this reaction, but apparently they were blindsided.  Obama’s proposal would have penalized wealthy families the most, since 70% of 529 “tax benefits go to households earning more than $200,000”.  As such, “middle class” families would not be seriously hurt by this change.  But here’s the rub.  The vast majority of Americans consider themselves middle class, including many with household incomes well into the six-figure range.

Don’t tax me, tax that rich guy over there.

The first rule of modern tax policy is raise taxes only on the rich. The second rule is that your family isn’t rich, even if you make a lot of money.

President Obama’s State of the Union proposal to end the tax benefits for college savings accounts ran afoul of these rules, which is why he abandoned it, under intense pressure from both political parties, within a week.

Tax-free college savings accounts, like the mortgage interest deduction and the state and local tax deduction, principally benefit people who range from affluent to wealthy. In pushing its proposal, the White House pointed to Federal Reserve data showing that 70 percent of balances in the college accounts were held by families making at least $200,000 a year. In theory, tax reform is supposed to be built around cutting back preferences like these, in order to pay for some combination of lower tax rates and tax preferences aimed at people with lower incomes.

Politicians have met with strong resistance to increasing taxes on the “merely affluent”.

But in practice, politicians from both parties have made a point of holding the group you might call the “merely affluent” harmless from tax increases. If you make $150,000 to $225,000, you make about two to three times the national median income for a married couple. The list of occupations that can get you into this income bracket — government official, academic, lobbyist, journalist — can sometimes make it hard for people in political circles to remember that 92 percent of American married couples make less than $200,000 a year.

A lot of people in this category don’t think of themselves as rich, and they benefit from tax provisions like college savings accounts.

So how can politicians raise more tax revenue?  It’s a challenge.

… If you can’t go after tax provisions for the merely affluent, you are exempting almost everyone from tax increases. And if you can’t broaden the tax base, then you are very limited in how much you can finance tax reform.

Where else can they find the money?

Raising taxes on the very rich won’t raise enough revenue to balance the budget, and the bottom 50% of income earners — who only pay about 2% of all federal taxes — are not a likely source.

Peter Suderman of Reason believes the 529 debacle shows that the “existing welfare state is unaffordable”.  On the other hand, Reihan Salam of Slate laments that the upper middle class is ruining all that is great about America.  In essence, both may be saying the same thing.  It’s hard to finance expansive government programs because “eventually you run out of other people’s money”.

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Josh Barro, “A ‘Rich’ Person Is Someone Who Makes 50 Percent More Than You”, New York Times, January 29, 2015.

October 21, 2014

Tax deductions give a big boost in government funding of elite private universities

by Grace

Taxpayers subsidize private elite universities at a rate that is ten times higher than that for public universities.  Generous tax deduction policies are the reason for this imbalance, according to Robert Reich’s opinion piece, “The Ivy League is ripping off America”.

Government subsidies to elite private universities take the form of tax deductions for people who make charitable contributions to them. In economic terms a tax deduction is the same as government spending. It has to be made up by other taxpayers.

These tax subsidies are on the rise because in recent years a relatively few very rich people have had far more money than they can possibly spend or even give away to their children. So they’re donating it to causes they believe in, such as the elite private universities that educated them or that they want their children to attend.

Private university endowments are now around $550 billion, centered in a handful of prestigious institutions. Harvard’s endowment is over $32 billion, followed by Yale at $20.8 billion, Stanford at $18.6 billion, and Princeton at $18.2 billion….

Because of the charitable tax deduction, the amount of government subsidy to these institutions in the form of tax deductions is about one out of every three dollars contributed.

Tax deductions boost per-student government spending at elite private universities to amounts significantly higher than spending at public universities.

The annual government subsidy to Princeton University, for example, is about $54,000 per student, according to an estimate by economist Richard Vedder. Other elite privates aren’t far behind.

Public universities, by contrast, have little or no endowment income. They get almost all their funding from state governments. But these subsidies have been shrinking….

That means the average annual government subsidy per student at a public university comes to less than $4,000, about one-tenth the per student government subsidy at the elite privates.

A flat tax could be the solution.

Reich asserts there is no justification for this inequity, but does not go so far as to propose cutting tax deductions for contributions to private universities.  Perhaps he agrees with the majority of Americans who favor a flat tax, which would likely eliminate most deductions, including those for contributions to private universities.

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Robert Reich, “The Ivy League is ripping off America!”, Salon, October 16, 2014.

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