Priority: Reform taxes, education

Nov. 26, 2012 @ 07:49 AM

Two of the top issues facing new North Carolina Gov. Pat McCrory and the General Assembly in 2013 are tax reform and education reform. For the performance of North Carolina’s economy to improve significantly in the short run, we need a more competitive tax system. For the performance of North Carolina’s economy to excel in the long run, we need a more competitive education system.

Are these two goals inconsistent? Some politicians and activists say yes. Those on the Left contend that education reform is impossible without dramatically higher spending on public schools – and that reducing North Carolina’s high tax rates on income will starve the state of the money necessary to make that happen.

On the Right, some argue that key tools in the school reformers’ toolkit, such as tuition tax relief to encourage parental choice, clash with the longstanding goal of eliminating biases in the tax code.

Both arguments are flawed. Even after counting the effects of tight budgets over the past four years, North Carolina continues to pour large amounts of tax money into its public schools. Measured in federal, state, and local dollars for operating and capital expenses, we spend about $9,000 per pupil – one of the highest spending levels in the world.

Other countries routinely produce higher academic performance despite spending hundreds or thousands of dollars less per student than North Carolina does. They include Japan, the Netherlands, Belgium, Australia, Korea, Canada, Germany, and France.

While these countries differ substantially in their public policies on education, there are some common themes. For example, they tend to set higher academic standards than we do. It’s more difficult to graduate from grade to grade, and from high school to post-secondary education or training.

Most of these higher-performing countries also foster greater diversity, choice, and competition within their education markets. Most Dutch and Belgian students attend the equivalent of charter or private schools, for example, as do about 45 percent of high school students in Korea, about 30 percent of those in Australia and France, and about 20 percent of those in the developed world as a whole. Here in North Carolina, the rate is less than 10 percent.

There is no single model for fostering school choice and competition. Some countries appropriate tax money directly to private or church-run systems, an approach we should oppose on philosophical and practical grounds. Instead, many American conservatives have long favored a mix of entrepreneurial public schools chartered independently of school districts, targeted scholarships for disadvantaged or disabled students whose individual needs might better be served in private settings, and tax breaks for families who save or spend their own money on their children’s education.

 The first element of the strategy, charter schools, is already in place and serving thousands of North Carolina children. Lawmakers also began work last year on the second element, targeted choice, by enacting a tax-credit program for children with special needs. But to some conservatives, the third element – tax breaks for family education expenses – seems to clash with their goal of reforming the state’s income tax.

They need to reconsider. Assuming that North Carolina retains an income tax, it is not just proper but imperative that families be allowed to deduct at least a portion of the money they save or spend on their children’s education. Think of it as a kind of IRA – because the return on the investment (higher income when the children grow up) is taxable, the principle of the investment (education investment) shouldn’t be taxed.

 We already do this to some extent. North Carolina families receive tax credits for preschool or day care expenses and tax deductions for 529 college savings plans. What state lawmakers should do in 2013 is broaden this approach to allow families to deduct part of what they save or spend on elementary and secondary education, such as tuition, books, or afterschool tutoring.

 Such a policy would promote economic growth and educational freedom. Both goals are important, and interrelated.

 

• John Hood is president of the John Locke Foundation and author of Our Best Foot Forward, a book on North Carolina’s economy. It is available at JohnLockeStore.com.