A new Mason-Dixon poll out this week shows that state Education Savings Account (ESA) programs, which expand school choice by allowing families to control a large share of the taxpayer resources going toward their children’s education, aren’t just sound policy for state lawmakers to enact, they’re also incredibly popular with the public.
Mason-Dixon found 78% of those polled support ESA programs. The wording of this poll, conducted in Tennessee in late January and early February, describes ESAs thusly:
Education Savings Accounts, also known as E-S-A-s, allows parents to use their education tax dollars to customize their child’s learning and development. Approved ESA expenses include technical training, K-12 school tuition, or even special needs therapies from an array of providers, including public and private schools or tutors.”
The first state to offer ESAs was Arizona, which enacted its program in 2011. Tennessee, where the Mason-Dixon poll was conducted, is now one of six states that has passed legislation to create an ESA program, but that number is expected to grow this year as lawmakers and governors in states across the country, both blue and red, look to provide ESAs as an option for their constituents.
Most state legislatures are in session right now, and bills to implement or expand ESAs are currently advancing in a dozen states. House Bill 3681 in South Carolina, legislation to institute ESAs in the Palmetto State, has 58 cosponsors in the House, which includes both Republican and Democratic lawmakers. (For more details on the South Carolina ESA bill, the Palmetto Promise Institute has provided a helpful analysis)
In a February 5 vote, the Missouri Senate Ways & Means Committee approved Senate Bill 160, legislation that would create the Empowerment Scholarship Accounts (ESA) program for students in cities and towns with a population greater than 30,000 people.
Also this past week, legislation to create an ESA program, Senate Bill 451, was approved by the West Virginia Senate. That bill now moves to the state House of Representatives, where a tough fight is anticipated.
It would be difficult to overstate the opportunities this education reform package would create for West Virginia’s children,” said Garrett Ballengee, executive director of the Cardinal Institute for West Virginia Policy. “West Virginia is one of the few states in the country with no education choice — public or private — and this legislation is an attempt to completely turn that sad reality around. ESAs, charter schools, and open enrollment are all in this legislation, so it has the chance to fundamentally transform the education landscape in this state.”
Aside from the available evidence that shows expanding school choice improves learning experiences and educational outcomes for students, new research indicates that ESA programs benefit the broader economy.
At the end of 2018, the Beacon Center of Tennessee, a Nashville-based think tank, put out a report demonstrating the economic benefits provided by Education Savings Account (ESA) programs. The report found that Tennessee’s ESA program, enacted four years ago, will yield the following benefits for the Volunteer State:
• An increase in the number of high school graduates in the state by 13,480, leading to $2.9 billion in economic benefits by 2038;
• An increase in overall personal income in the state by $683 million by 2038; and
• Reduce the number of felons in the state by 15,451 and the number of misdemeanants by 21,380, producing societal benefits of $685 million by 2038.”
Lawmakers in Tennessee are now looking to pass legislation this year that expands access to the state’s ESA program, which is currently limited to students with specials needs. Shaka Mitchell, the Tennessee State Director at the American Federation for Children, points out that support for ESAs is bipartisan and not limited to conservatives or Republicans.
Tennesseans overwhelmingly support Education Savings Accounts. This widespread support cuts across party lines and each of the Grand Divisions,” says Mitchell. “As different legislative proposals are under consideration I think this poll shows that Tennesseans have an appetite for a large-scale ESA program.”
Yet just as the benefits of ESAs are becoming apparent, their popularity is growing, and more and more states look to adopt ESAs, bureaucrats at the Tennessee Department of Education have decided to introduce an unnecessary complication for families who participate in the state’s ESA program. It’s a complication that Tennessee officials would do well to rectify.
The new twist is that the Tennessee Department of Education (DOE) has decided to begin issuing 1099 forms to parents whose children are enrolled in the state’s ESA school choice program for kids with special needs. To date, this author has found no evidence that any of the other five ESA states does this.
This action by the Tennessee DOE appears to fly in the face of current state law, which explicitly says that ESA scholarship funds are not to be treated as income. DOE is defending its action by claiming that because the IRS has not issued direct guidance on the issue, the default is to send the 1099 forms to households in the ESA program. Many think the reverse should be true. This matter is not a minor detail, as receiving a 1099 form means the IRS expects to see that reported on your tax return.
Tennessee law is the tiebreaker to me here,” says Ryan Ellis, an IRS Enrolled Agent who owns a tax preparation firm and lobbies the federal government on tax policy. “If Tennessee law explicitly says this is not income, an agency of the Tennessee government is bound to respect that. They don’t answer to the IRS. They answer to Tennessee law.”
As a matter of federal tax law, Ellis points out, any and all income from whatever source received is considered taxable income unless explicitly excluded. Tennessee has specifically excluded it, and the IRS has not opined.
This is a matter for the courts to settle if there is a dispute between the IRS and Tennessee. Right now, there isn’t one. The Tennessee education department’s requirements appear to be clear. They must obey Tennessee law.
In the meantime, many states are looking to follow Tennessee’s lead by creating an ESA program that will expand school choice by empowering families to provide their children with a superior, more customized education that will have them better suited for the 21st century economy.
Patrick Gleason is vice president of state affairs at Americans for Tax Reform, and a senior fellow at the Beacon Center of Tennessee. Follow Patrick on Twitter: @PatrickMGleason