Goldwater Institute Proposes New Tax Savings for Education

Posted on April 15, 2008 | Type: Press Release
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Phoenix--Arizona should become the first state in the nation to provide tax relief for parents who put aside money for educational expenses incurred during their children's kindergarten through high school years, argues a new report by the Goldwater Institute.

This year, Arizona began offering tax relief for families that save for their childrens college education, but for many families, that help comes too late, said Dan Lips, a Goldwater Institute Senior Fellow and author of the new report, Saving for School:  How Arizona Could Help Families Save for Their Childrens K-12 and College Expenses.

Arizona law currently allows a tax deduction of $750 for contributions to a 529 college savings plan, and $1,500 for joint returns. The Goldwater Institute proposes that similar tax relief be provided for families who set aside money for K-12 educational expenses, such as tutors, private school tuition, services for special needs, and educational technology (computers, Internet access). The vehicle for such savings would be a Coverdell Educational Savings Account (ESAs), which were created by federal law in 2001. 

The reason to focus on the K-12 years, argues Lips, is that this approach is more likely to promote educational opportunity and social mobility for students that havent traditionally attended college. Only 18 percent of African-American and 12 percent of Hispanics have a college education, compared to 28 percent for whites, according to the U.S. Census Bureau.

Affordability and access are not the primary causes for low college enrollment rates among some student groups, says Lips. The real problem is actually the limited number of students who leave the K-12 system qualified to pursue postsecondary education. This proposal aims at empowering parents to do whats right for their children.

The fiscal impact of the proposed tax relief for K-12 ESAs would be minimal, said Lips. The Arizona legislature has projected that deductions for college-level savings accounts might cost the state a total $2.5 million in 2008-2009. Assuming that deductions for K-12 savings were four times greater, the states general fund revenue would decrease by one-tenth of one percent (0.1 percent). The potential savings to the state, as parents use their ESAs to purchase services formerly provided by the public school system, have not been quantified.

Among the reports other recommendations:

 Individuals and businesses who contribute to ESAs of needy children should also receive a tax deduction or credit. 
 Arizona should redefine home schooling as private schooling so that parents can use funds from their ESAs for home schooling expenses.
 Families that save the taxpayers money by choosing not to use public education should receive a tax credit for their contributions to an ESA, rather than a tax deduction. 
 Policymakers could address the needs of lower-income families by making the tax credit refundable, expanding tax credits for scholarships, or by providing direct tuition scholarships.

Saving for School:  How Arizona Could Help Families Save for Their Childrens K-12 and College Expenses  is available online at or by calling (602) 462-5000.

The Goldwater Institute is a nonprofit public policy research and litigation organization whose work is made possible by the generosity of its supporters.

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