The starting point for the paper is the observation that most dollars spent by citizens to educate primary and secondary students are a tax deduction on their federal income taxes. For example, my property taxes and state income taxes are deductions when I file my federal income tax. My payment of these taxes has nothing to do with how much I use the public schools, only that I live in a jurisdiction subject to these taxes and that I have the right to send my children to these schools without additional payment. It also doesn't matter how much the public schools spend -- they could be spartan or lavish, efficient or inefficient. All of the tax payments can be claimed as deductions.
This arrangement contrasts with the funds that support private schools. Some of these funds are tax deductions -- for example, when a charitable donation is given to a private school, even if the donation is from a parent whose child attends the school. But the tuition payments paid by the parents are not tax deductible, and this is where my question arises. What should the federal government's tax treatment of private school tuition be? I think the answer starts with some recognition that enrolling children in a private school reduces the financial burden on the citizens of the state and locality of funding their attendance at the public school which their residence entitles them to attend. If there were no private schools, then public schools and the taxes that support them would have to be higher. Those higher state and local taxes could then be claimed as deductions on federal income tax returns.
We can approximate the amount of higher deductions by the per-pupil expenditures in the school districts of those students who attend private schools, modified to exclude those expenditures that would not follow the typical student and capped at the amount of private school tuition paid. This is what the paper noted above contributes -- an estimate of the tax cost to the federal and state governments for allowing these deductions by combining data from the American Community Survey, Public School Finance data, and the NBER Taxsim calculator. The result of the analysis is that the tax cost to federal and state governments is surprisingly small -- under $10 billion per year in 2010 dollars using the ACS from 2006 - 2010.
The title of the paper is "Donating the Voucher," based on the idea that if every student received a voucher equal to the per-pupil expenditures in his or her district, then 10% of the students are claiming no services with their vouchers and have essentially donated them back to the citizens who fund the public schools. I blogged about the politics of the idea several years ago, before I started work on the paper. The full abstract of the paper is:
Approximately 10 percent of school-age children in the United States are enrolled in private schools, relieving the financial burden on public school systems, and the taxpayers who support them, of the cost of their education. At present, the tax code does not allow families who provide this financial relief an income tax deduction, even though such relief is a gift to governments for exclusively public purposes and thus analogous to a charitable donation. Using the Public Use Microdata Sample of the American Community Survey and the NBER Internet Taxsim calculator, this paper estimates that granting families who enroll their children in private schools an income tax deduction equal to the per-pupil expenditures in their public school district would cost the federal government an average of $7.75 billion per year over the 2006 – 2010 period. This amount is less than one percent of federal income tax revenues. Because private school enrollment, public school expenditures, the likelihood of itemization, and marginal tax rates increase with taxpayer income, the dollar benefits of this change are positively related to income. At the margin, high-income taxpayers would receive about 35 cents in federal and state tax relief for each dollar of per-pupil expenditures foregone.