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Another loophole for the haves

Published Oct. 2, 2005

Last week the House of Representatives took time out from beating up the Internal Revenue Service to approve a fresh tax loophole.

The proposal would authorize households to use up to $2,500 of after-tax money to establish "school" accounts, whose earnings would be tax free if used for certain education-related purposes.

Lots of silly numbers were thrown around during the debate, but common sense tells us that the measure's promise for most taxpayers isn't just hollow, it's trivial.

For the 80 percent of families with incomes of less than $50,000 a year, the payoff in tax savings would probably be a princely $15 a year or less _ not much of a down payment on the private school tuition, home computers and such that would be among the permitted uses for the money. Indeed, $15 won't even buy a school uniform.

Realistically, the full tax benefit of the school account could be captured only by someone whose income was close to the bill's highest allowable level, $95,000, and who was a consistently lucky investor. Such people, of course, are the ones whose children are most likely to attend private schools. The 90 percent of American children who go to public schools would not be helped significantly.

These arguments, however, are seldom persuasive in Washington because they ignore the underlying explanation for the complexity of the tax code: Most tax benefits reward those who vote regularly and, even more important, contribute to campaigns. Tax breaks are always worth more the higher your tax bracket. With a rate of 15 percent, a $1,000 tax deduction is worth $150; for those in the 40 percent bracket, it's worth $400.

Of course, we expect the rich to reap some rewards for their political largess. But this little exemption would become a real danger if it were made bigger.

And it is just one a small piece of the more complicated agenda of privatization now being pushed by the right _ an agenda that offers false choices and seeks to shrink the public and community sphere, further dividing the haves and the have-nots.

The school accounts now being proposed are cousins of individual health accounts that will compete with Medicare, proposals to create private accounts to replace all or part of Social Security and other every-man-for-himself ideas so popular on the right. In each case, those with the largest incomes, the best health or the most wealth can opt out of the national mechanism for sharing risk and responsibility.

Supporters of the school-accounts idea insist that it would provide new choices for average families. Nonsense. How could the tiny tax savings for most families provide the crucial margin in decisions about private versus public schools? All that this new loophole would do is help those whose children already attend private school to stay there.

More generally, it would reinforce the notion that education is something to be bought, to be bid on. This is its most damaging feature, for when each of us buys our own education, will all of us get enough?

We all have a stake in an educated citizenry, even if we don't have children in school. Public schools, after all, are not some radical new idea. Nor is the notion of a national insurance program for the elderly. They are the glue that makes us one people. They, like fair taxes, reflect our shared interest in community and each other.

Those in the monied class already are insulated from the rest of America. That's their choice; that's capitalism.

But let's at least try to keep them involved in the most basic of civic enterprises, public education.

+ Richard C. Leone is president of the Twentieth Century Fund. +

New York Times