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Monday, October 16, 2017

Instead of Tax Hikes: Parents in Charge

I have more to say about taxes and personal income, but the second part will have to wait a couple of days. Based on an inquiry from a blog reader, I would like to take the opportunity to expand on one of the ideas for spending reform that I put together in A New Chapter for Wyoming.

First of all, let us establish the conditions that spending reforms must meet. They all have to:
  • Be permanent - we have a structurally over-sized government that exceeds the cost that taxpayers can afford under any and all economic circumstances;
  • Lead to meaningful spending cuts - when the spending cuts go into effects, we can permanently reduce taxes and thus return to taxpayers the money that government took to fund its over-sized spending programs; and
  • Rely on the free market - there is no better arbiter of the allocation of resources, production and consumption of resources, and development of new products, than the free market.
There are examples of reforms that convincingly show that what we need to get done is entirely doable. We may need to draw on both domestic and international experience: there are good domestic examples of reforms in K-12 education that expand parents' choice and children's opportunities; in terms of Medicaid, we may have to rely on, e.g., the Dutch health-insurance reform.

Unfortunately, there are no comprehensive examples of reform packages of the kind we need in Wyoming. The reason is, unfortunately, very simple: once the egalitarian snowball is in motion, it quickly grows into an unstoppable socio-economic force. (I explain this in detail in my new book The Rise of Big Government.) This should not discourage us; on the contrary, the roll-back of unsustainably big government must begin somewhere, and there is no better place for this than Wyoming.

In terms of education reform, the Wisconsin model comes to mind, but it is not the only way forward. To draw, again, on international experience, the Danish school system offers the best choice model to date. It works seamlessly from the parent's viewpoint: you choose the school you want and your local school district sends a voucher to that school, regardless of where the school is located in the country, or whether it is private or public. It is then up to the school do decide whether or not they want to charge more money on top of what the voucher provides.

The Swedish "school choice" example - often revered among ivory-tower libertarians on the Tenderfoot Coast between Times Square and Tysons Corner - is skewed in favor of government. Local school districts have the right to deny private schools a permit to open and operate, and there is a ban on charging any money on top of the voucher. Furthermore, private schools receive a smaller per-student amount than public schools, a feature of the "choice" model that was intended to starve private schools out of business.

Another American example of school choice is the Education Savings Account model. It is currently on the books in six states; when the first ESA reform was signed into law - in Arizona in 2011 - Lindsey Burke of the Heritage Foundation explained:
In April 2011, Arizona Governor Jan Brewer signed into law SB 1553, creating Arizona Empowerment Accounts. The first of their kind, Empowerment Accounts allow parents—in this case, parents of special-needs children—to remove their children from the public-school system and receive the money the state would have spent on them in an education savings account. Every quarter, the state deposits up to 90 percent of the base support level of state funding into a parent-controlled ESA. Parents can then use that money to pay for a variety of educational options including private-school tuition, private tutoring, special education services, homeschooling expenses, textbooks, and virtual education, enabling them to customize an education for their child’s unique needs. Parents may also roll over funds from year to year, and they can use the money to invest in a 529 plan to pay for college tuition in the future.

The National Education Association is not as generous to the ESA idea:
Although proponents claim that the program provides parents needed flexibility to devise customized education plans, data indicate that most families apply nearly all the funds spent on private school tuition, just as in a traditional voucher program. Furthermore, almost one-third of funds disbursed go unspent. ... Vouchers, including ESAs, do nothing to improve the education system. Indeed, they threaten irreparable harm. Even the most thoughtfully designed programs have failed to achieve meaningful positive effects on student achievement. Furthermore, there is no evidence that competition improves the performance of public schools. Meanwhile, these programs divert scarce resources from public schools and offer taxpayers virtually no oversight for how that money is spent, undermining principles of accountability, equity, and democracy.
The NEA's criticism is a statistical red herring. The use of ESAs is so small to date that the benefits have not yet echoed in aggregate statistics. Furthermore, to say that ESAs have not improved the performance of public schools is to say that public school administrators have not bothered to respond to competition - in short, they do not care about offering students better options when ESAs are introduced.

As for the point about "scarce" resources, here in Wyoming it is hardly a matter of resource scarcity when we have one of the costliest public-education systems in the country. I understand that when you are on the receiving end of taxpayers' money, every amount, no matter how large, is still scarce. Taxpayers, on their end, cannot afford afford to do away with that kind of scarcity.

One of the forgotten parts of education-freedom reform is that we must deregulate the market where private schools are supposed to be able to operate. This is only a general point for now, but it deserves more attention as we move forward. Regulations pertain to certification of schools and teachers, definition of suitable facilities - everything from classrooms to bathrooms - and mandates regarding testing and other curricular issues.

On other words, a bill to give parents the choice of how to educate their kids would have to take all these aspects into account, and possibly more. That, however, should not discourage anyone interested in legislatively advancing ESAs in Wyoming; the American Legislative Exchange Council offers a good piece of model legislation. However, in order to meet the three conditions listed earlier about a reform being permanent, securing spending cuts and relying on the free market, a reform in Wyoming would also have to open for private funding of schools on the same terms as tax-paid vouchers. 

This is an overlooked but important part of K-12 parent-choice reforms. The tax-paid voucher provides every parent with the same ability to choose a private or public school regardless of their income. In this way the voucher is superior to tax credits (unless the credits are refundable), but it still comes with one Achilles heel: it is funded by taxpayers and therefore vulnerable to legislative action. Lawmakers could, e.g., decide to place conditions on a voucher that would stymie choice and make life miserable for private alternatives to public schools. It is therefore very important that the tax-paid voucher is not a monopoly funding arm for school choice.

To guarantee freedom from future legislative shackles, a K-12 choice reform must include a venue for private, charitable funds to amend or replace tax-funded vouchers. Anyone who wants to should be able to set up a charitable fund for the purposes of paying for vouchers; to guarantee parity between the tax-paid voucher and the private voucher the donors to the private-voucher funds must be able to redirect their money from paying for government-provided vouchers to the private charities (otherwise the government vouchers would be over-funded).

Here, we run into an intricacy that has been completely ignored so far in the debate about education savings accounts, vouchers and other funding models. Existing tax-funded K-12 choice models are based on conventional general-fund approaches to government funding. Under this model, it is not possible to tell exactly where your tax dollar went. It is therefore desirable to include, in any parent-choice education model, a reform of overall school funding where each person's contribution is crisp clear. This means dedicating one tax, and one tax only, to the funding of school vouchers. 

Once the voucher tax is established, it will be easy for those who want to donate to private vouchers, to do so. All they do is claim a dollar-for-dollar deduction of the voucher-dedicated tax. 

With these modifications,

-Regulatory reform to pave the way for private schools, and
-Private, charity-based vouchers with dollar-for-dollar tax deduction from voucher taxes,

Wyoming could build a highly successful, widely used K-12 parent-choice education system.

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