Kelly and repeal of the federal tuition tax credit: Doing the right thing for the wrong reasons

The federal credit shouldn't exist. But if it does, Hobbs shouldn't prevent Arizonans from participating.

For me, Mark Kelly’s attempt to repeal the federal tuition tax credit for private schools is an exquisite example of doing the right thing for the wrong reasons.

In the big, but not beautiful, GOP reconciliation bill, there was a provision offering a $1,700 tax credit for contributions to a nonprofit that offers scholarships to K-12 private schools. This was another instance of the MAGA right abandoning traditional conservative principles, in this case for both education and tax policy.

The traditional conservative position is that K-12 education should be exclusively a state and local responsibility. The extent to which school choice is available, and how it is provided, is no business of the federal government.

The traditional conservative position on taxes is to favor low rates on broad bases. This means opposition to manipulating the tax code through credits and deductions to advance policy objectives other than raising revenue for the government through the means that least interferes with the workings of a market economy.

While a steadfast advocate for school choice, including private schools as an option, I am also a traditional conservative with respect to these two principles. So, I don’t think the federal tax credit should have been enacted and I favor its repeal.

Kelly, of course, isn’t a traditional conservative, and makes none of these arguments in his case to repeal the credit.

There are those who oppose public support for private schools as a matter of principle, particularly religiously affiliated private schools. While I disagree with that position, I respect it.

I suspect Kelly falls within that camp. However, the case he is making is only implicitly grounded in that principle. The explicit case he is making is characterized by sloppy thinking and a politician’s casual disregard for honest debate.

Kelly has named his repeal measure the “Keep Public Funds in Public Schools Act”. However, the tax credit would take away nary a dime from public schools and its repeal wouldn’t increase what schools receive a bit.

Kelly is using the abuses in Arizona’s universal voucher program as evidence in support of his bill. There are several reasons why this is a non sequitur.

The abuses in the Arizona universal voucher program aren’t resulting from the reimbursement of tuition payments to private schools. They result from a poorly designed, after-the-fact, approval process for payments to homeschoolers.

In addition to the universal voucher program, Arizona has a system of tax credits for contributions to nonprofits offering private school scholarships very similar to what has been created at the federal level. There has not been a record of abuses from that system similar to what is occurring in the voucher program for homeschoolers.

In short, the homeschooling abuses in Arizona’s voucher program are mostly irrelevant to the merits or demerits of a federal tax credit for contributions to nonprofits offering private school scholarships. The federal tax credit can be used for other educational enhancements, such as tutoring and extracurricular activities. So, there might be a strained relevance. However, the gatekeeper function would be much different. No applicant would have a statutory right to a grant from a nonprofit, as homeschoolers have under Arizona’s voucher program, although not under its comparable tax credit program.

Here’s an example of the sloppy thinking. On the one hand, Kelly complains that the Arizona vouchers went primarily to students already enrolled in private schools. On the other, he blames the voucher program for the closing of district schools. If vouchers didn’t change the schools students attend, how do they contribute to the closing of district schools?

Kelly is out of date. It is true that, initially, vouchers went primarily to students who were already attending private schools. Today, the majority of new vouchers are going to students transferring from a public school, either district or charter.

Does school choice contribute to district schools closing in Arizona? Perhaps. But a declining population of school-age children is, by far, the larger factor.

But let’s assume that school choice is a factor and ponder the cruelty of Kelly’s inferred position. School choice would contribute to the closing of district schools only because parents thought other options would better serve their children. Rather than facilitate that preferred option, Kelly would cut them off and limit public support to the option they consider inferior for their child.

While I oppose the federal credit and wish Kelly well in his repeal effort, despite deep misgivings about his argument, if the credit exists, Arizona taxpayers should be able to participate in it. There’s really no argument against it.

Participating, however, requires action at the state level. The federal law largely delegates administration of the credit to the states. States have to opt into the program and maintain a list of nonprofits eligible to participate.

The Arizona Legislature passed legislation, Senate Bill 1142, opting into the program. Gov. Katie Hobbs vetoed it with a message that featured her own casual disregard for honest debate.

According to Hobbs’s veto message, it would be “irresponsible to sign this bill before the federal government has released any regulatory guidance”. Actually, it is irresponsible not to make the decision now, comparable to her irresponsibility in delaying making a decision about conforming Arizona’s tax laws to the other provisions in the federal big, but not beautiful, reconciliation bill.

Under the federal law, contributions are eligible for the tax credit beginning January of next year. It is only fair for Arizonans to know whether they can participate by then. Arizona has a part-time legislature. This is the legislative session to make that decision.

The risks of making it now are minimal. The federal law is close to being self-executing. Because of our own system of tuition tax credits, Arizona is better prepared than probably any state to fulfill the state’s function under the federal law. And the fiscal risk is on the federal government. It’s not state revenue at stake.

I suspect that Hobbs didn’t like the political look of opting into the federal credit while arguing for constraints on the state’s voucher program, although those are two very different things. If Hobbs doesn’t want Arizona to participate in the federal tax credit program, she should level with her constituents and say so, not hide behind thin concerns about timing.

One final point. Arizona’s system of tuition tax credits was created before adoption of a universal voucher program. From a school choice standpoint, there is no need, or justification, for both.

Arizona’s tuition tax credits are just as wrongheaded tax policy as the federal one. Vouchers are vastly the superior school choice program.

The latest tax expenditure report from the Arizona Department of Revenue puts the lost revenue from the credits to the state at around $170 million a year, so a meaningful amount of money. Yet, in all the political agitation over school choice and the voucher program, no one seems to be advocating the elimination of the eclipsed state tax credit regimen.

It would be strange to opt into the federal tax credit while eliminating the similar state credits. But, assuming Kelly comes up short in his federal repeal efforts, strange would be the preferable course.

Reach Robb at robtrobb@gmail.com.