House Backs Savings Plan for Education

Embracing a controversial new tax break, the House voted Thursday to allow most families to save up to $2,500 annually in tax-sheltered savings accounts that can be used for private-school tuition and other educational expenses, including transportation, tutoring or a computer.

The measure faces an uphill battle, however. Both Education Secretary Richard W. Riley and Treasury Secretary Robert E. Rubin said that if the Senate approves the bill and sends it to President Clinton, they will recommend that he veto it because it is “bad education policy and bad tax policy.”

The bill passed in the House by a 230-198 vote, largely along party lines. Regardless of the measure’s ultimate fate, it represents another salvo in a rapidly escalating partisan battle over education policy, an issue that polls have shown is soaring to the top of voter concerns.

With an eye toward a possible issue in next year’s elections, Republican proponents were jubilant after the bill’s passage, saying that it would help disenchanted middle-class parents send their children to private schools--and that competition for students would improve academic standards in both public and private schools.

But the measure was denounced by most Democrats as a GOP giveaway to the wealthy--and one that would deprive the federal government of millions of dollars in taxpayer funds.

The bill would allow families, relatives, companies and charities to set up and contribute to “education savings accounts,” using after-tax dollars. For most income groups, as much as $2,500 could be put into the accounts each year for each child. Withdrawals and the earned interest would not be taxed.

Individuals with annual incomes up to $95,000 and couples making up to $150,000 could contribute the full amount. Permissible contributions would decline after that, and the accounts would not be available to individuals making $110,000 or more annually and couples making at least $160,000.

For students from kindergarten through high school, the accounts could be used for tuition, tutoring, transportation costs, uniforms, supplies, home computers and other expenses. Funds left over at the end of the year could be rolled over and eventually used for college.

The measure expands a tax law, passed in July, allowing families to save up to $500 annually for higher education.

According to its chief congressional champion, Sen. Paul Coverdell (R-Ga.), an annual $2,500-account started before a child’s first birthday would grow to $58,415 by the time the child reached high school age--assuming an interest rate of 7.5%.

“The beauty of this bill is that the choice of how to spend that money is left to the parents,” said Rep. Deborah Pryce (R-Ohio).

But Rep. Martin Frost (D-Texas) said that the bill “does not help families struggling just to make ends meet” and “will not do anything to address the pressing needs of our public schools.”

Calling the bill “a distraction,” Bob Chase, president of the National Education Assn., a strong Democratic Party ally, said: “What family making $25,000 in pretax income can afford to set aside $2,500--and derive the maximum benefit this bill would provide?”

Other critics ridiculed the bill. Noting that transportation costs would be a legitimate use of the tax-sheltered accounts, a spokesman for the National School Boards Assn. suggested: “Perhaps this bill should be renamed the BMW tax subsidy act.”

The measure was championed by Speaker Newt Gingrich (R-Ga.) and Rep. Bill Archer (R-Texas), chairman of the House Ways and Means Committee.

The bill’s supporters and opponents offered widely divergent projections on who would benefit most from the legislation. More than 70% of the tax savings would go to families making $75,000 or less, according to Congress’ Joint Committee on Taxation.

But the bill’s critics disputed such projections and offered their own assessment of its impact. Treasury Department officials predicted, for instance, that families making $93,000 or more a year would get 70% of the benefits.

“It is a typical Republican bill,” fumed House Minority Leader Richard A. Gephardt (D-Mo.). “It is unfair. It offers unwarranted benefits to the wealthiest Americans.”

Senate Majority Leader Trent Lott (R-Miss.) has said that he intends to bring the bill up for a vote in that chamber before Congress adjourns for the year in November. But it is unclear whether Senate Democrats would cooperate with that pledge. The Democrats currently are blocking virtually all Senate business, except for must-do appropriations bills, as a protest of the GOP majority’s unwillingness to allow full consideration of campaign finance reform legislation.

The savings account bill is part of a blizzard of GOP education initiatives this year--a belated recognition that the party until now has all but ceded the issue to Democrats.

During the 1996 campaign, for instance, the leading Republican proposal on the subject was the abolition of the Department of Education. Since then, GOP pollsters have persuaded party leaders to seize the initiative on education.

The House has passed a voucher program that would give some low-income families in the District of Columbia the option of sending their children to private schools and approved Clinton’s request for $100 million in additional funding to states for the creation of charter schools.