Congress needs to save Coverdell IRAs

Robert Enlow President and CEO, Friedman Foundation for Educational Choice
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One of the provisions that is set to expire in January if Congress doesn’t extend the Bush tax cuts is a tax break that helps children attend the school of their choice. Known as the Coverdell Education Savings Accounts, this education IRA was incorporated into the sweeping Bush tax cut plan a decade ago. It expanded a college-only savings program to allow parents to also save for K-12 education expenses tax-free, including private school tuition.

The Coverdell IRAs, as they are often called, are the only vehicle in our onerous federal tax code that strengthens school choice. Other school choice options are left to the states.

The late United States Sen. Paul Coverdell, a Georgia Republican, championed the idea of expanding a federal tax program for college tuition to include education expenses for children in grades K-12. He succeeded in getting a bill twice approved by Congress, but it twice met the veto pen of President Bill Clinton.

Shortly after Coverdell’s sudden death, President George W. Bush incorporated the education IRA idea into his tax cut plan. For the past decade, parents have been able to save up to $2,000 per child annually — tax free — on interest earned for private school tuition and other education expenses including tutoring or even the purchase of a computer.

If parents started saving once a child was born, they could accumulate enough money to make a decent down-payment toward private school tuition with the education IRA.

Unfortunately, as the lame-duck Congress is at loggerheads whether to maintain the current tax rates or raise them, adults have once again forgotten the children. Kids will be the losers in a political battle over money. While there have been many impassioned speeches about the need for working Americans to keep more of their salaries, there has been silence about maintaining an education tax break that has made it easier for parents to send their children to better schools.

Financial institutions have already started urging parents with Coverdell IRAs to roll over their funds into tax-free, college IRAs if Congress doesn’t fix this problem. Tax breaks for college IRAs will not be affected by the expiration of the Bush tax cuts. Only the Coverdell tax break, which, for many children, opened the door to a private K-12 education, will expire.

But that shouldn’t make parents feel any better. College students and their parents already get plenty of assistance in their pursuit of a higher education. Starting with the GI bill, Pell Grants, other student loans and state lottery programs, college students are offered government subsidies, tax breaks and other programs supporting their public and private choices for higher education.

Most parents of children stuck in the monopoly of public schools have to pay taxes and accept the education offered their child whether it is acceptable or not. For parents who can scrape together enough money for private school tuition, the Coverdell accounts help make private school a little more affordable.

When Coverdell was alive, these education savings accounts won bipartisan support, including from U.S. Sen. Joseph Lieberman of Connecticut. Congress today is certainly more partisan than it was in the late 1990s, but parents are also more desperate to have more K-12 options. Congress should remember that as the clock ticks down to Dec. 31.

If the House and Senate can’t settle its standoff on the Bush tax cuts before we slip into 2011, then it should at least address this education IRA for kids. A lame-duck Congress will be truly lame if it adjourns with an outcome that hurts children.

Robert Enlow is President and CEO of the Foundation for Educational Choice, the legacy school choice foundation of Milton and Rose Friedman.