I agree that tax credits for school choice are not a very good idea. The regressivity is not a particularly big problem; you can simply make the credits refundable. But economically, there is no difference between a tax credit and government spending, except that tax credits are more complex and less transparent.
But it is different, you will insist; with a tax credit, you get to keep your own money, while with actual spending, the government takes your money. Yes, well, that is true for you, where you is someone who gets the tax credit. But unless we cut spending somewhere else, that is not true for me, where me is a childless single. Since the government is taking less of your money for other spending, it has to take more of my money to cover the shortfall. This is no different, either economically, or morally, from taking money from me to give to you in order to educate your children at the school of your choice.
Indeed, tax credits are worse than spending, because they're not transparent. Since they don't show up as flows in the federal budget, it is harder to keep track of what we are spending on them. Of course, for people who want the programs thus funded, this is a feature, not a bug. But as a general rule, it's best to stick to Megan's Third Law: We should never unnecessarily multiply the complexity of the tax code. It almost always costs you more in the long run. And if libertarians and conservatives really want to attack the scope of the state, the first step is insisting on transparency no matter whose ox gets gored.
I strongly agree with the idea of being transparent with the flow of tax money. I also like the idea of "zero sum" budgeting. It is a lot harder to introduce new programs if you need to explain which older programs should be removed to pay for the new program. It is easy to make a "small increase" in the budget many times.
Just like ONE $5 latte can't break your budget but 4 per day could be a major issue, one new addition to the budget (by ITSELF) is rarely an issue but the cumulative effect is bad.
But to make these types of judgments it has to be completely clear where the money comes from and where it then goes. In this sense, tax credits are rarely a great idea.
But, we are already taking money from you to educate other people's children. The difference is that instead of being told which school the child will attend based upon the child's geography, the tax credit allows the parent more choice as to which school the child will attend.
Okay, Megan, but why then is a negative income tax - i.e., a tax credit - or the EITC so much better than straightforward spending on welfare when it comes to the question of poverty? Your explanation above suggests that you would favor the latter over the former, but, as you've made abundantly clear over the years, that is emphatically not the case. Not only does nothing in the explanation above give your readers any basis for distinguishing your preferences in funding welfare from your preferences in funding education; it in fact appears to follow from the above that your preferences for the EITC over welfare are simply wrong.
Now, I happen to agree with you on the welfare question, and I'd be very interested in learning why tax credits in the educational context are any different. Your less generous readers, however, might uncharitably conclude that you prefer tax credits over welfare spending for no other reason than that you have it in for the poor.
The EITC is a simple cash rebate. I would like it even more if it were a line item in the budget. If we're going to give people money for vouchers, we should give them money for vouchers, not disguise it as a tax credit.
Okay, Megan, but why then is a negative income tax - i.e., a tax credit - or the EITC so much better than straightforward expenditures on welfare programs? Your explanation above suggests that you would favor the latter over the former, but, as you've made abundantly clear over the years, that is emphatically not the case. Not only does nothing in the explanation above give your readers any basis for distinguishing your preferences in funding welfare from your preferences in funding education; it in fact appears to follow from the above that your preferences for the EITC over welfare are simply wrong.
Now, I happen to agree with you on the welfare question, and I'd be very interested in learning why tax credits in the educational context are any different. Your less generous readers, however, might uncharitably conclude that you prefer tax credits over welfare spending for no other reason than that you have it in for the poor.
Refundable tax credits seem to be an important part of Obama's economic plan. I count five of 'em, with a bit more in the way of 'complexity' as well. After his blatant free-trade pander, how much more would render your support wobbly?
Would your "loss" be offset by no longer paying school taxes? (I assume that's part of the deal since the linked post doesn't say otherwise.)
Aren't school taxes paid to the state government? How would that affect the problem?
Do you think that the Founding Fathers are right, and a nation requires a universally educated populace, and that everyone should pay for it? After all, everyone benefits from an educated populace, especially writers.
Imagine how many parents won't pay for their children's education out of indifference or inability. Also, read Kathy G's post on the benefits of universal early education; it's very informative.
A clarification--I'm puzzled how state taxes paid to the state for its education expenses will fit into your scenario. The federal government can issue vouchers or tax credits, but what will states do to replace the revenue, especially now after the lack of regulation in the financial services has led to the creation of so much bad debt? And if you're paying state but not federal school taxes, why change at all?
A clarification--I'm puzzled how state taxes paid to the state for its education expenses will fit into your scenario. The federal government can issue vouchers or tax credits, but what will states do to replace the revenue, especially now after the lack of regulation in the financial services has led to the creation of so much bad debt? And if you're paying state but not federal school taxes, why change at all?
Susan, I'm not objecting to paying for education; I'm objecting to disguising the payment as a tax credit. I am strongly in favor of paying for education.
I saw Kathy G.'s post, but I stopped reading after she described James Heckman as a conservative because he's at Chicago. Presumably she thinks Austan Goolsbee is also a rock-ribbed Republican advising Obama only as some sort of secret conspiracy.
I stand by my assertion: the returns to a few small scale programs are high, but they have yet to be scaled. I don't particularly care if we spend money on them or not--there are about a zillion government programs I'd work on eliminating first--but I don't think it will do much good, and it's not an excuse to avoid fixing the schools.
"Indeed, tax credits are worse than spending, because they're not transparent."-MM
That much is true. Economically simple vouchers would be preferable to tax credits. But so what? If we can't get a vouchers, but we can get tax credits that would be just about equivalent to vouchers, then why not support the tax credits?
Megan's argument seems politcaly naive. She seems to be saying:
There is substantial evidence that school choice improves the quality of education significantly, so it just seems odd to oppose a reform that offers large benefits (in improved education) just because it carries some very modest costs (in slightly increased complexity of the tax code).
Tax code simplicity often looks like an obsession, or even a fetish, for Megan, rather than a reasonable goal grounded in sound economics (which always weighs the costs and benefits of a policy change, not just the costs).
Just to make the point clearer, suppose we had a tax code that had a single 100% tax rate on all income, with no deductions. According to Megan's reasoning, that would be a wonderful tax code. After all, what could be simpler?
But of course its negative effects on incentives would be so powerful that it would do tremendous economic damage. The current American tax code, even with its byzantine complexity, is far better than the very simple one I considered above.
So Megan's implicit economic claim:
just isn't correct. Simplifying the tax code is one of many goals of sound economic policy, and it is not even the most important one.
I see now, you complained about the tax credits and "taking money from me to give to you in order to educate your children at the school of your choice." You didn't say you minded paying for education, just that you minded paying for other people to have a choice on where to educate their children. (Not to mention the blow to those with private educations! If everyone can have one, it isn't special anymore, is it?)
How can you stand by factually incorrect assertions? Or is Heckman's data bad? As to whether or not he's a conservative, I'll leave that to more knowledgeable people.
Presumably she thinks Austan Goolsbee is also a rock-ribbed Republican advising Obama only as some sort of secret conspiracy.
Don't you think that's a little snide for the "pages" of the Atlantic Monthly?
Fixing the school is a new topic, so I'll set that aside.
I think rwe is on to something in his criticism of Megan's position; however, I think the ranking of vouchers as superior to tax credits can only be sustained by restricting the scope of the comparison to the impact on the complexity of the tax code. In addition to the feasibility argument, I would also posit that tax credits are more flexible and less susceptible to facilitating government intervention in the management of schools. As recent state supreme court cases have demonstrated, even if tax credits are economically equivalent to subsidies or vouchers, there are legitimate distinctions related to the chain of control over funds which give more power to parents when they spend money never taken as opposed to money being returned or newly awarded.
tax credits for school choice are not a very good idea. But maybe they are the best possible idea.
I agree with rwe's first post: If voucher programs lose at the ballot box or in the courts, then "vouchers for school choice" is no longer a possibility, and "not the best but possible" beats "perfect but impossible" every time.
I think a bigger reason tax credits are worse than equivalent spending programs is that spending programs are subject to review every year during the budget process. Tax provisions stay in place indefinitely until someone goes to the trouble of trying to change them.
Also, in many states (especially in the west) it takes a 2/3 or other supermajority vote to eliminate or reduce a tax credit, but only a simple majority to cut spending.
Susan, I was arguing specifically with people who say there is a difference between a tax credit and new spending, not with you. I have repeatedly and lengthily stated my support for vouchers, and my belief that we don't pay teachers enough. I just think tax credits are worse than no vouchers; as proposed they benefit mostly wealthier families who need them less, and they give us a less transparent program. If conservatives want to roll back government, we should start by agitating for transparency in the tax code; tax credits are a lot easier to defend--and lobby for--than new spending.
I can't reiterate everything I believe in every post so that people who are determined to give it the least charitable possible reading cannot possibly misunderstand me. For one thing, many of the people so determined will ignore the plain english language meaning of the words I use if that gives them something to argue with.
I think if you start with the assumption that I do not actually want innocent children to die in want or grow up without an education, you'll get a lot more out of my blog. And we'd probably have a much more interesting discussion than you accusing me of being hateful slime, and me saying, well, no, I think you're wrong about that.
If nothing else, perhaps we could just stipulate that you think I'm hateful slime, and that I respectfully disagree. Then we could move on to more interesting matters.
"I think a bigger reason tax credits are worse than equivalent spending programs is that spending programs are subject to review every year during the budget process. Tax provisions stay in place indefinitely until someone goes to the trouble of trying to change them."
I used to think this, too. But consider the farm bill. Maybe just "staying in place indefinitely" beats getting reviewed every few years when the review results in increased spending.
Even if there is not a real cash flow difference between the state cutting a private school a check for $500 or you cutting the check yourself and taking it out of your taxes, there is a an important legal and perceptional difference that makes it worthwhile. Here in Arizona, our scholarship tax credit program has proven much more resilient in the face of legal challenges than traditional voucher programs (http://www.usnews.com/blogs/on-education/2008/05/16/education-news-roundup.html), chiefly because the courts don't view tax credits as public money. Simplicity is preferable in public policy, but in this case, tax credits get us past a significant legal hurdle. So in this case the extra complexity is necessary and justifiable.
"I just think tax credits are worse than no vouchers; as proposed they benefit mostly wealthier families who need them less, and they give us a less transparent program. If conservatives want to roll back government, we should start by agitating for transparency in the tax code; tax credits are a lot easier to defend--and lobby for--than new spending."-MM
I'm not sure that vouchers would really constitute "new spending." The evidence indicates that school choice promotes efficiency, so that vouchers could actually improve results while holding spending constant. The money spent at a private school through the voucher (or tax credit) is money that would not have to be spent at a public school. So there need be no net increase in government spending.
As for tax code complexity, there are good economists who agree with Megan about simplifying the tax code ceteris paribus, yet also believe that tax credits for primary and secondary education are a pretty good idea. Robert Barro, for example, wrote:
And CATO agrees. That said, though, I wish to emphasize that this sometime critic does not consider Megan "hateful slime." Actually, it's a mystery though why a bright woman like Megan bothers with SusanofTexas--who has a habit of asking for sources and then insulting the people who offer them.
Just to make the point clearer, suppose we had a tax code that had a single 100% tax rate on all income, with no deductions. According to Megan's reasoning, that would be a wonderful tax code. After all, what could be simpler?
I'm a pretty regular reader of Megan, and I've never seen her articulate the position that a whole lotta tax code simplicity would obviate the ill effects of an otherwise really really bad tax code. I don't think you really can accurately write that such a tax code would be desirable "according to Megan's reasoning."
The program would make sense for private elementary and secondary education, however, where it could be the near equivalent of a voucher plan.
Robert Barro may very well have written the above. But that doesn't mean he wouldn't actually prefer an straight-out increase in spending to yet more tax code complexity. My guess is he'd prefer the spending.
This country's addiction to tax code complexity pretty clearly flows from lack of political leadership. It's politically hard to propose spending actual dollars (and raising the taxes that provide them), so we settle for subterfuge, and pay the consequences in lower growth and less prosperity.
I. I don't think you really can accurately write that such a tax code would be desirable "according to Megan's reasoning."
Jasper, I'm sure Megan doesn't really support a 100% tax rate on income. That was hyperbole. The point is that she overemphasizes the importance of simplicity and underemphasizes the incentive effects of changes in tax rates or tax credits. Sometimes a tax credit does more good than harm.
II. Robert Barro may very well have written the above. But that doesn't mean he wouldn't actually prefer an straight-out increase in spending to yet more tax code complexity. My guess is he'd prefer the spending.
Maybe so. But the main point is that Megan is claiming that the benefits of school choice (through the education tax credits that are similar to vouchers) would be less than the harm done by a very small increase in the complexity of the tax code. But she made little or no argument for that dubious claim.
If you saw an argument, please tell me what it was. Robert Barro clearly disagrees with her. If the only way he could get school choice was to use tax credits, he'd take it--unike Megan.
Megan is a good econo-blogger, but when she makes a strong assertion without much supporting evidence or reasoning, she's going to get criticism for it.
Megan, accusing people of criticizing your work because they hate you will seem immature. If it isn't true you end up looking like you can't take criticism or questions that imply criticism. If it's true, you're much better off ignoring me and preserving your dignity.
Your motivation is immaterial. I've never heard anyone discuss local school taxes in relation to school vouchers, and it seems like an important part of the puzzle. I scarcely need to tell you you are free to ignore my questions, and can't understand why you wouldn't, unless you felt it was necessary for some reason.
Susan, obviously this will be a problem for the states too, but it's not a killer; they can claw back the revenue on that income if they want, and it's still better for the people who get the credit because they have more money than they would have otherwise. The states have much deeper problems than an education tax credit, stemming partly from the revenue cycle bust mostly from their own idiotic benefit giveaways, and permanent inability to save even a dime in flush times.
megan-
This is no different, either economically, or morally, from taking money from me to give to you in order to educate your children at the school of your choice.
This seems a good place to bitch that I received my "2nd half" property tax bill today!
I see that I paid over $1600 to educate somebody else's child today!
(Not to mention $940 to the 'city', $20 for the 'tards', $10 for the 'drunks, dopers, and crazies', $6 for the Children's Services, $2 for the zoo and parks, and $1.57 for "Senior Options!?")
And despite the "nationwide" 20% drop in housing prices, my property taxes remained constant.
Susan of Texas-
I've never heard anyone discuss local school taxes in relation to school vouchers, and it seems like an important part of the puzzle.
Here in Ohio, "school vouchers" have nothing to do with "local" taxes.
"Charter schools" receive the "state money" that is paid for any student enrolled. Here in Columbus, that means they get about $5000/yr- but the other $7000/per student in "local" money stays with the public schools (Columbus schools spent over $12k/student last year with a 72% grad rate)- thus "public funding/student" increases spending in "public" schools for each and every child that goes "private".
I'll admit that it does make it harder for the school board to get another tax increase passed...