Americans sent a loud and clear message to Washington in 2016 – cut the size of the federal government and get rid of the U.S. Department of Education.
Parents across the nation are pressing for school choice so they can be in charge of where and how their children are educated. They want good alternatives to federally funded and controlled public education.
However, Washington politicians continue to introduce legislation that has the potential to subject private and homeschools to federal intrusion. A voucher bill introduced by Rep. Steve King, R-Iowa, last February would have allowed homeschool students to use a voucher to access their portion of the federal money allocated per pupil. The bill was roundly defeated.
Now school choice for private schools and homeschoolers has been included in the GOP tax reform bill passed by the Senate recently. The bill’s amendment was offered by Texas Republican Sen. Ted Cruz to expand 529 College Savings Plans to include K-12 expenses for public, private, religious and homeschools.
Currently, there is a tax-advantaged plan for pre-K through college, the Coverdell Education Savings Plan with a structure very similar to a Roth IRA. After-tax contributions can be made to the account, which grows tax deferred and permits tax-free withdrawals as long as they used for legitimate education expenses. However, the maximum that can be contributed annually is merely $2,000, while there are income restrictions for contributors. The money cannot be used for homeschool expenses unless the family is operating its homeschool like a private school in one of the 14 states that identify homeschools as private schools. The funds can be invested in most investments that trade on the major stock exchanges.
The current 529 College Savings Plan is a very popular tax-advantaged plan that grows tax-free and from which tax-free withdrawals can be made as long as the relevant tax laws are followed. Since these are state-sponsored plans, each state determines the maximum the plan can accumulate in assets. There are no income restrictions for contributors, and much more money can be contributed to a 529 plan than to a Coverdell. However, there are other restrictions: The money can be invested only in approved 529 investment vehicles (akin to a 401k), and the money can be used only for college and graduate studies at accredited institutions.
The Cruz 529 amendment differs in that it expands the current 529 plan to include K-12 expenses for public, religious, private and homeschools. Up to $10,000 annually per child can be withdrawn from the plan.
The Cruz amendment has a broad definition of homeschool expenses while noting that the definition of a homeschool will be according to the laws of each state, some of which treat homeschools as private schools.
The bill does not stipulate that funds can be used only for accredited expenses as in the Coverdell plan. This is important because some states define homeschools as private schools, and some states, such as Texas, do not require private and homeschools to be accredited.
The homeschool associations disagree on whether the Cruz amendment will result in the unintended consequence of allowing the federal government to exercise control over homeschools.
The Home School Legal Defense Association, which is strongly opposed to federal funds for homeschoolers, helped to craft the Cruz amendment and maintains they are not concerned with encroaching federal control. Will Estrada, director of federal relations for HSLDA, cites the Coverdell plan as an example that the federal government has so far not intruded over the more than 20 years of the plan. HSLDA has lobbied unsuccessfully for 15 years to expand the Coverdell ESA to include homeschools.
Now they have an opportunity with the Cruz amendment for homeschool expenses to be included in a tax-advantaged account. They believe the Cruz 529 plan is akin to a health savings account (HSA) or current 529 plans. Contributions to HSAs are before-tax dollars, and withdrawals are tax-free for approved medical expenses.
Perhaps HSLDA is unaware of the federal government’s attacks on the highly popular HSAs, a proven free-market health care reform that helps to keep costs down.
Under Obamacare, these plans are being targeted for extinction. Democrats have written rules for what constitutes a “qualified health plan,” which HSAs cannot meet. Investors Business Daily reports that “it appears as though the administration has succeeded in quietly killing off HSAs, at least in the individual market.” In National Review, HSA expert Roy J. Ramthun concludes, “… it is only a matter of time before HSA-qualified plans completely disappear.”
The potential for government interference is what has homeschool parents very jittery about any federal programs, warning they are unconstitutional. Parents believe it’s just a matter of time before any federal program will expand in size and control, like the ESEA of 1965, resulting in total control of education by Washington.
The National Home Education Legal Defense also believes the Cruz amendment is unconstitutional and subjects homeschooling parents to federal government intrusion.
With the government attacks on HSAs already underway, this should be a red flag to constitutional scholars and HSLDA about expanding 529 plans to include private and homeschools.