NCPA - National Center for Policy Analysis

Perverse Impact Of Federal Tax Code On Education

April 27, 2001

Some experts make the case that the federal government exacerbates inequality in education by giving more money to districts with affluent children than to those with poor ones. It does so with a tax system that subsidizes school spending in home-owning communities -- which are comparatively middle-class or wealthy.

Homeowners who itemize deductions reduce their federal income taxes by a portion of their property tax payments.

  • Stanford University economist Susanna Loeb notes that this system spurs school spending in wealthy communities -- both in total dollars and relative to spending in less wealthy districts.
  • Districts in wealthier communities can raise property taxes more easily -- knowing that Washington picks up part of the tab.
  • On balance, direct federal education outlays are mostly for poor children -- while indirect spending mostly benefits the affluent.
  • And federal tax expenditures for schools exceed direct spending.

Using 1989 data (because 2000 census data on the subject aren't yet available), Loeb found that federally-stimulated inequality occurs both among and within states.

  • Federal tax expenditures in New Jersey were $1,257 per student, but direct spending was only $237.
  • In Alabama, tax expenditures were $165, while direct spending was $371.
  • In wealthy Princeton, N.J., total per student federal aid was $2,399.
  • But in poorer Camden, N.J., it was only $1,140.

Source: Richard Rothstein, "How the U.S. Tax Code Worsens the Education Gap," New York Times, April 25, 2001.


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