Tax Fairness in Education (School tax credit) Bill

North Carolina General Assembly: 20112012

House Bill 41 Tax Fairness in Education Benefits of Providing Parents with Choice Prepared for House and Senate Members Representative Paul Stam

Slide Order Understanding the Bill Fiscal impact of tax credits Comparing th e Expenses

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Illinois’ Tax Cr edit Program Minnesota’s T ax Credit Prog ram Who would qu alify?

Additional Fisc al impact

Sample Form f or Tax Credit

Comparable P rograms

Voters’ Positio n on Tax Credi ts

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Understanding the Bill House Bill 41, “Tax Fairness in Education” is a bill to allow parents in North Carolina to choose which school is best for their child.

The bill allows an individual income tax credit for part of the expense of each eligible child who is educated in a nonpublic school or home school. The credit is equal to $1,250 per semester.

Counties would also have the option of giving a tax credit of up to $1,000 per school year for a child who is a resident of that county and is educated in a non-public school.

The main portion of the bill would go into effect for the school semester beginning in Fall of 2011.

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Fiscal impact of tax credits NC General Assembly Fiscal Research Estimated Fiscal Impact on State and LEAs - Total Estimated Impact Range of Enrollment Increases Tax Credits Granted Value of Tax Credits Granted Avg. Public School Exp. Per Child Reduced Public School Expenditures** Net Fiscal Impact on State LEA Exp. Per Eligible Student LEA Operational Savings** Net Fiscal Impact on LEAs

2011-12* 2012-13 2013-14 2014-15 2015-16 Low High Low High Low High Low High Low High 8,283 15,018 8,082 14,796 7,898 14,599 7,788 14,517 7,731 14,516 ($10,353,490) ($18,772,968) ($20,205,834) ($36,988,782) ($19,744,160) ($36,496,672) ($19,470,851) ($36,293,122) ($19,326,802) ($36,289,653) $5,006 $5,006 $5,006 $5,006 $5,006 $5,006 $5,006 $5,006 $5,006 $5,006 N/A N/A $41,463,655 $75,181,983 $40,460,162 $74,066,337 $39,535,706 $73,080,936 $38,988,433 $72,673,348 ($10,353,490) ($18,772,968) $21,257,821 $38,193,201 $20,716,002 $37,569,665 $20,064,854 $36,787,814 $19,661,631 $36,383,694 $1,931 N/A N/A

$1,931 N/A N/A

$1,931 $15,994,071 $15,994,071

$1,931 $29,000,481 $29,000,481

$1,931 $15,606,986 $15,606,986

$1,931 $28,570,135 $28,570,135

$1,931 $15,250,389 $15,250,389

$1,931 $28,190,029 $28,190,029

$1,931 $15,039,285 $15,039,285

$1,931 $28,032,808 $28,032,808

*Maximum tax credit in FY11-12 is $1,250. Maximum tax credit in all future years is $2,500. **Because allotted ADM is based off of the higher of projected ADM or prior year actual ADM, savings from reduced expenditures are not realized until the 2012-13 school year.

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Fiscal impact of tax credits Determining whether it is economically feasible to provide tax credits for children in North Carolina requires answering key questions:  Will the proposed tax credit per semester be less

costly than educating the student in public school, and how many parents are predicted to utilize this option?

 Will it be feasible to allow children already in private schooling to qualify for the program?  Will North Carolina state and local governments save money by allowing parents educational options?

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Comparing the Expenses

$6,931

$2,500

An individual tax credit would cost the taxpayers of North Carolina $2,500 per student each year.

A typical child in the North Carolina Education System costs state and local governments approximately $6,931. (Total spending per student, including federal dollars, is $8,450.)

The cost of educating a child in the public school system is considerably more expensive than the individual tax credit.

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Fiscal impact of tax credits The most recent estimates by Fiscal Research show that, except for the first year, a tax credit could save the state of North Carolina an average of $29.1 million per year, and could save counties an average of $22 million per year, a net gain to the state and local governments of $51.1 million each year.

Using the middle range of estimates, about 11,500 students will be provided alternative education through this program. The public school system will be able to save time, energy, and resources.

In addition, taxpayers will be able to see their tax dollars more efficiently spent as the $51.1 million in savings is available for other needs in the school systems.

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Fiscal impact of tax credits

$5,006 is the predicted operational “savings” to the State that results from each typical student transferring from the public schools, with $1,931 average local expenditures savings.

The number of eligible students enrolling in the program will determine how much state and local governments will save each year. As more parents take advantage of the program the long term savings will continue to increase.

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Fiscal impact of tax credits Allowing tax credits for the parents of children who attend private and home schools will provide a small reprieve for those whose circumstances have drawn them away from the public school system to which they are entitled.

This bill could assist parents who cannot easily afford alternative means of education. If the financial situation is such that the family is struggling, the family may be able to enroll their child in a public school for a year before transferring them to a school that is better equipped to suit their child’s needs.

This bill also opens the door for parents to explore the many educational opportunities available to their children and select the choice that best fits the needs of their family.

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Other States with Tax Credit Programs Illinois and Minnesota each have a form of individual tax credit for educational expenses. While the programs differ in various ways from the proposal in HB 41, it is valuable to see how these programs have worked.

Illinois provides tax credits to cover education expenses of students educated in any public or private school.

Minnesota provides tax credits as well as tax deductions to cover educational expenses for children in any public or private school, including home schools.

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Illinois’ Tax Credit Program

Illinois’ Tax Credits for Education Expenses program was enacted in 1999 and began operation in 2000.

The Illinois tax credit is capped at $500 per family and covers educational expenses for students in any private or public school.

After the first $250, families receive a tax credit equal to 25% of their expenditures. To qualify for the full credit a family must spend $2,250 in education expenses. They must also have a state tax liability of at least $500.

In 2009, approximately 183,500 students participated in the program saving families in Illinois over $71 million dollars.

ABCs of School Choice

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Minnesota’s Tax Credit Program Minnesota’s Tax Credits for Educational Expenses program began in 1997.

The program provides a tax credit for educational expenses for students in any private or public school, including home schools. The credit is capped at 75% of educational expenses not including tuition, or $1,000 per child.

The credit is available for lower income families and begins to phase out for household with an income of more than $33,500.

In 2006, more than 56,000 taxpayers participated in the program and saved over $15 million.

ABCs of School Choice

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Who would qualify under HB 41?

Enrollment is limited to taxpayers whose NC taxable income is less than $100,000 (married, filing jointly), $80,000 (head of household), $60,000 (single) or $50,000 (married, filing separately).

For 2011 - 2015, the student must have been enrolled in public school the two previous school semesters.

Beginning in 2016, the requirement would drop to one previous semester in public school.

The student must be under the age of 18.

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Sample form to receive tax credit

A simple, straightforward form attached to your tax return is needed in order to receive the tax credit.

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Voters’ Position on Tuition Tax Credits

According to a national survey done in 2010 by the journal Education Next and Harvard University’s Program on Education Policy and Governance,

55% of Americans polled were in favor of a tax credit for educational expenses.

“A proposal has been made to offer a tax credit for educational expenses (fees, supplies, computers, and tuition) to low- and moderate-income parents who send their children to public and private schools. Would you favor or oppose such a proposal?”

Completely Favor

Somewhat Favor

Somewhat Oppose

Completely Oppose

Neither Favor nor Oppose

19%

36%

11%

9%

25%

2010 Education Next - Program on Education Policy and Governance Survey

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