Generous New Tax Break for Private School Tuition Out of Line with Existing Tax Benefits
A new tax break for private school tuition is larger than the tax break for college tuition, thanks to a last-minute addition to the state budget that was introduced and approved in the early hours of the morning.
The version of the budget approved by the Legislature’s budget committee includes an individual income tax deduction for private school tuition. Filers may deduct tuition expenses up to $4,000 per year per student enrolled in kindergarten through 8th grade, and $10,000 per year for students in grades nine through twelve, beginning in tax year 2014.
This tax break is separate from the expansion of the state’s school voucher program, in which the state pays part or all of private school tuition for students that meet the program’s criteria.
The new tax break for private school tuition is generous, especially when compared to the already-existing tax break for college tuition. In tax year 2012, the maximum deduction per student per year for college tuition and fees was $6,543. That amount is tied to tuition levels in the state and may increase slightly each year, but the tax break for higher education tuition is still far below the tax break for private high school tuition, as shown in the chart below.
In the amount of tax revenue lost, the new tax break for private school tuition is also larger than the one for college tuition. The deduction for private school tuition is expected to reduce state tax revenue by $30 million a year, while in 2012 the deduction for college tuition reduced state tax revenue by $25 million, according to the Wisconsin Department of Revenue.
One notable aspect about the new tax break for private school tuition is that any tax filer, no matter how high his or her income, is eligible to claim this deduction. Again, this stands in contrast to the deduction for higher education tuition; married couples earning more than $100,000 are not eligible for that deduction. Given that a large part of this tax break is likely to benefit wealthy people, it makes Wisconsin’s tax system more regressive, especially when paired with the $651 million income tax cut included in the current version of the budget that already favors the highest earners.
In order to be economically competitive in the future, Wisconsin needs to make investments in schools and higher education. A tax break for private school tuition that has no income eligibility restrictions, and is larger than the deduction for college tuition, does not make a positive contribution to the state’s education system.