Friday, August 3, 2012
Should K-12 expenses be deductible?
I was surprised to see in a Louisiana Department of Revenue news release (7/27/12) that taxpayers may deduct expenses for elementary and secondary education including public or private schooling as well as home schooling expenses. The deduction is 50% of eligible expenses limited to a $5,000 deduction per dependent ($10,000 of expenses annually). For non-public schooling, the deduction is 100%, still limited to a $5,000 deduction. The taxpayer has to have documentation for the expenses and claim the student as a dependent. Expenses might include school uniforms, supplies, and private school tuition.
The individual income tax rates in Louisiana are a low of 2% and high of 6%. So a $5,000 deduction might save a parent $300. That doesn't sound like much, but it represents money the state doesn't have to spend for K-12 public education to benefit all school children.
Why allow a deduction for these expenses? It seems that the rationale may be tied to school choice, but the benefit is smaller than what is typically discussed for school vouchers (typically in the thousands of dollars). Perhaps it is to alleviate concerns of parents of having to purchase school supplies. But if the schools had the tax savings instead, they could purchase the supplies. So far as uniforms, parents need to buy clothes anyway.
Some states offer sales tax holidays for purchase of school supplies. I refer to sales tax holidays as "tax oddities" and bad tax policy. The benefit to families is likely less than the $300 for the Louisiana deduction.
Another flaw - if the family owes no income tax, they get no benefit. If they owe no income tax it is due to low income and that family likely needs the school assistance more than families with greater income.
Another flaw - complexity. Special rules are needed to define what is deductible and families need to maintain records they would not otherwise likely keep.
I think the state and its citizens would be better off without the deduction and using the savings from repeal for direct K-12 educ to benefit all public school students.
What do you think?