Date: 12-22-2017
Private school tax break advances Trump’s school choice agenda
When Shea Shaw’s son was in the second grade, she was faced with a choice.
She could keep him in public school, where she suspected an undiagnosed learning disability was making it hard for him to keep up. Or, she and her husband could pull together the money to send him to a private school, where they thought smaller class sizes might give him a fighting chance.
She chose the latter.
“His entire class size for third grade was eight children,” said Shaw, who enrolled her son Marcus at The de Paul School in the Highlands.
Under federal tax reform passed this week, more parents in Kentucky and across the country may be encouraged to do the same. That’s because the tax overhaul includes a provision that could give families incentives to choose private schools.
The bill, expected to be signed into law by President Donald Trump, expands the function of 529 savings accounts. Until now, families only have been able to use the so-called “529 plans” to save for college tax free. Now, those plans can be used to pay for up to $10,000 in annual K-12 expenses, including private and religious school tuition.
The change represents the first step in expanding school choice under Trump, with advocates including Education Secretary Betsy DeVos lauding the move for giving parents more options.
But like other criticisms of the Republican tax plan — which, according to one analysis, will deliver the largest share of benefits to the wealthiest 5 percent of Americans — even school choice proponents agree that the 529 plan expansion will most likely benefit those who can already afford to send their kids to private school.
“Most low-income families don’t have extra income to save for a 529 plan,” said Gary Houchens, an associate professor at Western Kentucky University and school choice supporter. Houchens noted that he was giving his personal opinion and not speaking on behalf of the Kentucky Board of Education, of which he is a member.
For Shaw, who runs a small business, and her husband, who is working as a restaurant server while earning his bachelor’s degree, paying for their son’s private school isn’t easy. Together, they pay for part of the nearly $17,000 tuition out of pocket but rely heavily on financial aid and scholarships to make up the difference, she said.
Marcus is now in the fifth grade at de Paul. The 10-year-old is thriving, Shaw said, thanks to teachers who understand his learning differences, including his now-diagnosed dyslexia.
Shaw said she wishes that public school systems would improve to meet the needs of all students. But until that happens, she said she is happy that lawmakers are expanding how families can use 529 plans. With a daughter about to enter kindergarten, Shaw said her family would consider taking advantage of the savings accounts.
“People who choose to send their children to private school still pay taxes toward public schooling,” she said. “And to give them an opportunity to almost recoup some of that money would be wonderful.”
Since 1996, families have been able to set up 529 plans to save for the costs of college. Contributions to the plans are taxed on the front end, but those dollars can then grow tax-free in a mutual fund or similar investment. When a child reaches college-age, families can then use those savings to pay for qualified educational expenses.
Now, families will be able to do the same for K-12 costs.
Many families have 529 plans through private investment firms, such as Fidelity or Vanguard. But states also offer their own plans, sometimes saving families from additional fees.
Kentucky, for example, offers a 529 plan known as the Kentucky Education Savings Plan Trust. There are more than 17,000 accounts across the state that, altogether, hold more than $200 million, according to the Kentucky Higher Education Assistance Authority.
The families who own those plans could start using the money to put toward K-12 tuition as early as Jan. 1.
Though the change is a small victory compared to other items on the wishlists of school choice advocates — including a federal voucher program that would pump taxpayer dollars directly into private schools — policy experts say it signals a shift in Washington’s priorities.
“It’s more of the message it sends, that we care more about private schools than public ones,” said Ben Miller, an expert on higher education issues for the left-leaning Center for American Progress.
Miller and other public school advocates say the change will hurt already underfunded public schools by reducing state tax revenues. That’s because, in addition to the federal tax break, some states also offer state income tax benefits for contributing to 529 plans.
Kentucky is one of the few states that doesn’t. But next door in West Virginia, taxpayers can deduct the full amount of their annual 529 plan contributions from their taxable incomes on state income taxes. Under the new federal tax law, taxpayers can deduct up to $15,000 for each 529 plan contribution plan before running afoul of gift tax rules.
“It will basically allow rich people to launder money to pay for private education without paying state taxes on a portion of the money,” Miller said.
Only 13 percent of families used 529 plans to help pay for college in 2016-17, according to a report by the student loan company Sallie Mae. According to a 2012 government study, those families are more likely to be well-off.
For now, families weighing whether to send their kids to private or public schools may not see the change to 529 plans as a tipping point.
DJ and Jessica Leisl, of Louisville, have three young children. Their oldest, a 5-year-old daughter, will need to enroll in kindergarten next year. In deciding where to send her, the Leisls have toured both public and private schools.
Jessica, a real-estate agent, said they are leaning toward their local public school because “it’s a free option and it’s a really good option.”
The Leisls also aren’t sure whether 529 plans — established to encourage savings over a long period of time — would do them any good for their children’s elementary school educations.
“I don’t think it will be useful until they hit high school,” said DJ Leisl, an engineer.
Still, as parents, they say they appreciate the symbolism.
“It does kind of give me the feeling like, ‘OK, the government is trying to give us something here.’ To give us more choices to better our children in the way we would prefer,” Jessica Leisl said.
“I don’t know if it’s actually beneficial,” she said. “But it gives that feeling.”
By Mandy McLaren
Courier-Journal
