Opting Out

By Ian Aikens | June 15, 2020

While “Staying at Home” recently, I decided to get my taxes out of the way once and for all. I was unpleasantly surprised to discover that I owed a larger-than-expected amount on my state income tax. I know they say we have no state income tax here in New Hampshire, but that’s baloney. If you have received more than $2,400 in income in interest, dividends, or annuities in one year, you will pay the State of New Hampshire a 5% tax on the total. Of course, they do have some of the usual exemptions for age and blindness (and why not deafness too – isn’t that discrimination?), but if that isn’t a tax on income, then I don’t know what is. They say it’s a tax on passive income, not earned income, but a tax is a tax, no matter what you call it.

However, what I did discover is New Hampshire has a great option available to take a credit against this income tax by making a donation to a school scholarship program. This 85% credit, not deduction, is part of the New Hampshire Education Tax Credit Program. It serves two worthwhile purposes: it helps children from families with less financial means attend non-government schools, and it gives state bureaucrats less money to waste. The latest data shows there were 413 students in the state benefiting from this program at 58 participating schools. This is a lowly participation rate of less than 1% of the 47,584 students who are income-eligible statewide. Still, to the families of those 413 students, even a mere scholarship of 15% of government school per-student spending means a lot.

So, how does the program work? As with all government programs, they come with their share of rules, conditions, and requirements. That said, the requirements don’t appear to be particularly onerous. To be eligible, the family members must be New Hampshire residents, the child must be between the ages of 5 and 20 (and not graduated from high school) or must be entering kindergarten for the first time or entering 2nd-12th grades and coming from a government school. The family’s income cannot exceed 300% of the federal poverty level, which in lay terms means $51,720 for a family of 2, $65,160 for a family of 3, and exponentially an additional $13,440 for each additional family member. There are only two government-approved scholarship organizations that qualify for the education tax credit program – the Children’s Scholarship Fund and the Giving and Going Alliance. I checked out both organizations before I gave my donation, and both seemed just fine to me. The Children’s scholarship Fund is for nonsectarian schools, and the Giving and Going Alliance is for the more faith-based crowd. Most important, the scholarships are awarded to students struggling in their current government schools to allow them to attend any school—private, religious, out-of-district government school, even home schooled—that the parents deem best for their child.

The tax credit program was established in 2012 by SB372 and launched in 2013. It only applied to business organizations, which could utilize the 85% credit against the Business Profits Tax (BPT) and/or Business Enterprise Tax (BET) or Interest & Dividends Tax (I&D). However, HB1686 extended the same credit to individuals to use against any I&D tax owing. The program has an annual cap of $6 million, and while contributions from donors have increased over the years from $20,000 in fiscal year 2014 to $381,000 in fiscal year 2018, it still has never gotten anywhere close to the cap.

For years, those who purport to help the poor have been on the offensive to kill the program or chop it down as much as possible. One of their favorite arguments is the program is for the benefit of “the rich.” The data does not support their claim. In the 2018-2019 school year, 61.4% of the students in the Children’s Scholarship Fund and 44.9% of the students in the Giving and Going Alliance qualified for free or reduced-price lunches.

Their next favorite argument is that the program “carves out” $6 million that would otherwise go to government schools. More bunk. Firstly, the maximum tax credit is 85% of the $6 million, which is $5.1 million. Secondly, up through March 8, 2019, the total tax credits claimed since the program started are only $2,218,254. That’s only 7.25% of what could have been claimed over a 6-year period.

Another favorite rant against the program is that it drives up property tax rates. Considering how small the program is, this is completely laughable. The funds that would have been paid to the state if the tax credits had not been claimed go to the general fund (a big black hole), and since only 24% of state funding goes to education, there’s a 76% chance the funds would have gone to other priorities than education. If you count every dollar given out on a per-student basis since the program began, it would only come to $12.66 per student. However, per the Department of Education’s Office of Student Finance, the total annual cost at government schools is an average of $18,991/student. Looking at it another way, even if you included all the educational tax credits claimed from 2014-2019 (6 years) and compared that to what the state spent in just the last fiscal year ($1.4 billion), that’s .16 of just 1%. Any way you slice it, the program is a drop in the ocean of what is spent at government schools.

If they were really so concerned about property tax increases, maybe they should look at the Veterans Tax Credit Program. Its numbers are huge compared to the peanut Education Tax Credit Program. In 2016, 54,790 veterans claimed $26.76 million in property tax credits through the veterans’ program as compared to a few hundred students. As an example, looking at Manchester, New Hampshire’s largest school district, in 2016, 2,797 veterans claimed the credit for a loss in tax revenue of $1.2 million. Contrast that with 27 students who received scholarships at a total loss in tax revenue of $133,534, which includes the additional grant for the federal lunch program. That’s roughly 11% of the veterans’ credit, so why go after peanuts if your real concern is high property taxes?

Of course, the real elephant in the room is the increase in state spending on education despite the steady drop in student populations. From 2009-2018, the statewide average decline in enrollment was 10.1%. However, spending and adding staff have gone in the opposite direction. From 1992-2015, New Hampshire government schools’ student-staff ratio declined from 8.6 to 5.8 (national average was 8.0 in 2015). It is the dramatic increase in non-teaching staff that is driving the wild spending. In 1992 the schools had an average of 19.6 students for every non-teaching staff member; by 2015, the number was down to 10.8 students for every non-teaching staff member. If schools are for teaching, why are so many non-teachers needed?

Despite all these extra resources at government schools, clearly one-size-fits-all doesn’t work for every child. Why begrudge children who do better in non-government schools (and for the most part are not from the upper echelons of society)? Such a large pool of students who are eligible for the federal school lunch program suggests that students who use the scholarship program tend to do worse in government schools and need extra attention and resources. So, by leaving government schools, that should not only reduce the burden there, it should reduce it even more since those who leave require more services. If the money truly followed the child, then this miniscule number of students should actually get more resources, not less. However, under the education tax credit program, the average scholarship for 2018-2019 was $2,301, and the rest of the tuition costs was shouldered by the families. Not to mention transportation costs, which parents have to arrange themselves. And yet these families manage to get their kids into better schools at great expense to themselves and are grateful for the program due to better outcomes for their children.

This is a win-win for everyone. Certainly, the parents and children are happier with the expanded choices afforded by the program. In surveys required by the program, 93.8% of the parents in the Children’s Scholarship Fund and 96.9% of the parents in the Giving and Going Alliance indicated that they were satisfied with the program. Government schools get to lose a few “customers” who are better served elsewhere anyway, and the foregone revenue has a negligible effect on their budgets. Perhaps the only losers are the power control freaks who cannot stand it when anyone opts out of their centralized control plans.

References:

Cline, Andrew. (2019, March 27). The Education Tax Credit Program: Fact vs. Fiction. Retrieved from jbartlett.org/wp-content/uploads/The-Education-Tax-Credit-Program-Fact-vs.-Fiction.pdf

ed Choice. (2020). School Choice – New Hampshire Education Tax Credit Program. Retrieved from www.edchoice.org/school-choice/programs/new-hampshire-education-tax-credit-program/

NH Department of Revenue Administration. (2017). The NH Education Tax Credit Program. Retrieved from www.revenue.nh.gov/quick-links/education-tax-credit.htm

NH Department of Revenue Administration. (2018 and 2019 ED-05). Children’s Scholarship Fund Organization Report. Retrieved from www.revenue.nh.gov/quick-links/documents/childrens-scholarship-fund-ed-5.pdf

NH Department of Revenue Administration. (2018 and 2019 ED-05). Giving and Going Alliance Scholarship Organization Report. Retrieved from www.revenue.nh.gov/quick-links/documents/giving-and-going-alliance.pdf

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