A Line in Sand Over School Tax Bill

On its face, it is a modest proposal: a new tax break worth a mere $7 to $37 a year for parents with children in elementary or high school.

Yet President Clinton takes it so seriously he may send Vice President Al Gore to preside over the Senate when the measure comes up for a vote by the middle of this week. And if the bill, which has cleared the House, should reach his desk, Clinton plans to veto it.

That is because the bill’s implications are far more momentous than its immediate impact. Congress is about to decide whether to breach a rampart that has long kept federal subsidies from flowing freely to the nation’s private schools.

Endorsed by the Republican congressional leadership, the bill provides a new tax break for parents who save for elementary and secondary education expenses, including private and parochial school tuition. It is expected to provoke this year’s most focused debate over clashing visions of how to remedy the problems afflicting the nation’s public schools.

While some federal education programs help students in private schools, never has Congress passed such a broad-based subsidy for families to pay private school tuition.

Opponents see it as a stalking horse for a wide-ranging effort to channel federal resources away from public education and into private schools. Proponents regard it as an important step in the direction of increasing parents’ range of choice in educating their children.

The education savings account proposal, sponsored by Sen. Paul Coverdell (R-Ga.), allows most families to put up to $2,000 a year into a special account in which interest accrues tax-free, so long as the money is withdrawn only for education purposes.

It is the centerpiece of a Republican education agenda that also includes school vouchers and proposals to fold most federal education programs into a block grant for states. Clinton has vehemently opposed all those measures. Instead, he has pushed for new funding to repair deteriorating school buildings. Clinton also wants to put 100,000 more teachers in classrooms and to bolster after-school programs.

“Clinton is mostly buying into the old [Great Society] era paradigm: More programs, more spending will somehow yield a better result,” said Chester E. Finn Jr., an education advisor to then-President Reagan who is now a fellow at the Hudson Institute think tank. “Republicans in their way are stumbling toward a new paradigm of education reform that involves quite a lot more decentralization, freedom and customer responsiveness instead of just funding the system.”

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The Clinton administration sees the debate differently.

“The choice is clear,” Gore said. “Sen. Coverdell’s plan, which would give the average taxpayer with children in public schools a mere $7 a year in savings, doesn’t compare to our broad plan to build and modernize our public schools and prepare all of America’s children for the 21st century.”

The debate comes at a time both political parties have put education at the top of their agendas. Concern about the declining quality of public education has surfaced sporadically for years.

In 1983, a federal commission declared the problem so vast that it named its report “A Nation at Risk.” New alarms were raised this year when an international study of industrial nations found that U.S. high school students were among the worst performers in math and science.

The issue has taken on new political salience in recent years as the children of the baby boom have grown to school age, catapulting education to the top of public concerns. When a recent Los Angeles Times Poll asked what was the most important problem facing California, education was cited more than any other issue, including crime and drugs.

Virginia Gov. James S. Gilmore, a Republican who was elected last year, got a political boost from the issue by promising to reduce class size by adding 4,000 elementary school teachers.

“The future of American politics may belong to whatever political party develops credibility on dealing with education,” said Sen. Robert Torricelli (D-N.J.), one of the handful of Democrats who is supporting the education savings account bill.

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Democrats have traditionally had the upper hand on the issue. But the debate over the GOP education tax bill is a sign of how much the political dynamic has changed.

When Republicans wrested control of Congress in 1994 on a tidal wave of anti-government conservatism, they clamored for abolishing the U.S. Education Department, cutting the education budget and turning programs such as school lunch subsidies into state block grants. But those ideas proved unpopular with voters and gave Democrats a potent issue with which to bludgeon the GOP in the 1996 elections.

Last year, Republicans shifted gears and tried to advance a more positive message on education--providing school vouchers, tax breaks and other means to give parents more choice in their children’s education.

“Three years ago, when the Republicans first got elected, they took the slash-and-burn approach,” Finn said. “They are working their way back from that.”

But they have not been able to enact their agenda. A bill to provide school vouchers for low-income students was defeated by the House last year. Clinton vetoed a measure to have a pilot program of vouchers in the District of Columbia.

Republicans hope the education savings account measure will not suffer the same fate. It passed the House last year and is considered likely to clear the Senate with the support of most Republicans and a half-dozen or so Democrats, including California Sen. Dianne Feinstein.

Democrats plan to advance their own education proposals in a series of amendments, including one to ban the use of savings account funds for private school tuition. A key vote will come on an amendment by Sen. Carol Moseley-Braun (D-Ill.) to substitute $3.3 billion in tax incentives over five years for school construction and renovation.

With Senate passage of the bill considered likely, opponents are counting on Clinton’s veto to kill the measure. Torricelli, a Clinton ally as well as a sponsor of the bill, says he hopes to persuade the president to sign the bill once it clears Congress. But the White House has given no signal that it is willing to negotiate.

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The legislation builds on a law enacted last year that allowed most taxpayers (individual filers earning more than $110,000 a year and joint filers above $160,000 do not qualify) to put up to $500 per child in after-tax dollars into education savings accounts for college expenses. Withdrawals and earned interest are not taxed if the money is used for higher education.

The bill before the Senate would raise the limit on contributions to $2,000 and allow the money to be used for elementary and secondary education as well. Allowable expenses, in addition to private school tuition, include computers, school uniforms and after-school tutoring, which are incurred by public school students as well.

Proponents say the measure would make it easier for middle-class families to bear educational costs and help them escape from bad public schools. Coverdell calculates that if a family saved $2,000 a year for the first 10 years of a child’s life in an account earning 7.5% interest, it would earn $8,294 in interest and save $2,322 in tax payments.

But that much benefit accrues only to those who can afford to save the maximum allowed. An analysis by the Joint Tax Committee found that the average tax benefit would be $37 a year for families with children in private school and $7 a year for families with children in public schools. The bill would cost an estimated $1.6 billion over 10 years, with more than half the benefits going to families with children in private school, according to the Congressional Budget Office.

Democrats and Education Secretary Richard W. Riley argue that the proposed tax benefits would be negligible and would benefit only those affluent enough to save. They argue that Clinton’s initiatives to fix school buildings and reduce class size would be far better uses for the $1.6 billion.

Some critics acknowledge, however, that because the bill is so modest in its scope, it is tougher to fight than more ambitious proposals.

“It’s just an effort to drive another wedge in the direction of school vouchers,” said Sandra Feldman, president of the American Federation of Teachers. “It is particularly insidious because it doesn’t seem so awful. It seems so benign.”