SCHOOL VOUCHERS NOT TAXED UNDER THE FAIRTAX
A country’s most important resource is not its natural resources but its people. The country that survives and prospers best is one that takes care of its children.
All parents desire that their children will have opportunities for a better life. There is one area that greatly affects someone’s ability to prosper and be successful in life—education.
We see distressing reports on how many of our children graduate from high school unable to read or balance a checkbook.
The teacher’s unions assert that education’s problems are largely rooted in a lack of funding. In some cases, that may be true, but there are numerous examples of charter and private schools in the same neighborhoods receiving less funding but getting better results.
There are also discipline problems in public schools and reports of students recruiting other students to use and sell drugs and commit other crimes.
This is not the case with most charter and private schools—at least not to the same extent.
An increasing number of states are yielding to parents’ demands and providing either school vouchers or other types of payments parents can use to send their children to private and, in many cases, religious schools.
One of the issues that has not been clearly addressed is whether these payments/credits against tuition count as taxable income for the parents receiving them.
Income/Payroll Tax
IRS Publication 525, Taxable and Non-Taxable Income, contains an exhaustive list of things that are treated as income and must be reported on the federal income tax return.
When you review the list of items that constitute “non-taxable income”, the following specifically relate to education:
- The ability to exclude from your income up to $5,250 of qualified employer-provided educational assistance.
- Parents can establish a Qualified tuition program (QTP) established and maintained by a state, an agency or instrumentality of a state, or an eligible educational institution. The earnings on the QTP will not be income to the student receiving them unless they exceed the cost paid for education expenses.
- A recipient of a scholarship or fellowship can exclude from income the tuition and fees and course-related expenses, such as fees, books, and equipment that are required for courses at the eligible educational institution.
The IRS said it would not require the recipients of special payments made by 22 states in 2022 to include those payments in their income.
The same publication says, “Other payments that may have been made by states are generally includable in income for federal income tax purposes.”
Many think that since most of the alternative schools are 501(c)(3) organizations, the payments to these schools will be deductible to the parents even if they are taxed at the federal level.
However, this is inconsistent with Internal Revenue Code treatment of donations to charitable organizations. Current rules require that in order for a donation to a charitable organization to be tax deductible, the donor can receive nothing of value in return for their donation.
In this case, the parents will be receiving education which will equal or exceed the value of the donation. Therefore, payments made to a 501(c)(3) school do not qualify as tax deductible donations.
The answer is that no one knows what the IRS will say about the federal income tax treatment of the value of the educational benefits received by the parents.
There is a basic premise in the Internal Revenue Code that education expenses paid by parents, other than those paid in a QTP, are made from after-tax income.
For example, if a parent pays $800/month for private school tuition, they must pay it from their take-home pay, the amount remaining after deducting income and payroll taxes.
Since the Internal Revenue Code is not clear, it is likely going to be a decision heavily influenced by the present administration. We all have seen pictures of President Biden joining the United Auto Workers picket line in their strike against the auto makers.
We also know that the Democrat Party receives very large donations from the teachers’ unions who very much oppose school choice and vouchers.
In Florida, the voucher payments could be as much as $8,000 per child, and a family with three children would have to report an additional $24,000 of income and pay federal income taxes on that amount.
FAIRtax Treatment of School Vouchers/Credits.
Under the FAIRtax, payments made by parents to private schools are not subject to the FAIRtax. They are made from the total amount you earn and not the amount remaining after-tax.
The FAIRtax only applies to retail sales of new goods and retail services. The vouchers/credits are not retail purchases and are therefore not taxable under the FAIRtax.
CONCLUSION
This comparison of the FAIRtax and the existing income/payroll tax relative to the taxation of school vouchers/credits clearly illustrates the difference between the two systems.
The FAIRtax is very clear and only taxes retail consumption. Education is not subject to the FAIRtax.
The present income/payroll tax is not clear. It is subject to interpretation because unlike consumption, there are many definitions of income. In fact, most of the tax cases decided in courts involve the definition of income.
The choice is easy—do we want a system for funding the federal government:
- That is so simple everyone can understand it, or do we want a system that no one understands and requires payments to professionals to try to comply.
- That shows the costs of the federal government on every retail receipt so all of us understand what we are paying.
- That helps U.S. companies compete with foreign competitors.
- That keeps jobs in the U.S. rather than exporting them to other countries.
- Permanently establishes the solvency of Social Security and Medicare.
- THAT IS THE LARGEST TRANSFER OF POWER FROM D.C. TO THE PEOPLE SINCE THE CONSTITUTION WAS ADOPTED.
D.C. is ignoring the one real solution that allows us to remain citizens and not subjects, the FAIRtax. The FAIRtax is simple, non-invasive, but most of all, IT WORKS!
THE SOLUTION—PASS THE FAIRTAX!
If you don’t like the idea of the IRS and D.C. requiring you to reveal more and more of your private financial data and changing us from citizens to subjects, you should be helping to pass the FAIRtax.
- Under the FAIRtax, there are no more tax returns. You no longer have to disclose your personal financial information to the government.
- Banks and other financial institutions no longer have to tell the government about the dividends and interest you received, or about how much you made trading stocks, bonds or other capital assets.
- There is no need for the government to know anything about your IRA because you won’t need an IRA. The FAIRtax lets everyone save for their retirement tax free.
- And of course, if the government doesn’t have your confidential financial data, they can’t leak it.
In addition to solving the confidentiality problem, the FAIRtax lets business owners concentrate on making their business more profitable and beneficial for their shareholders and employees.
President Biden and Congress, pass the FAIRtax and:
- Do the right thing for the people of America and fix the broken income/payroll tax system!
- Go down in history as the ones who freed all present and future Americans from the tyranny of the income/payroll tax system.
- Ensure that there can be no more leaks of our confidential information.
- Transfer power back to the American people over how much tax they pay!
The FAIRtax transfers power from Congress and the bureaucrats to the people. We, not D.C., decide how much federal tax we pay.
There is no IRS—the states collect the FAIRtax.
Only retail businesses will have to collect the FAIRtax and remit it to the government.
Since less than 10% of the retailers account for 90% of retail purchases, there will be much less opportunity for evasion.
Why would D.C. pass the FAIRtax and give up this almost unlimited source of donations? The only way that they will is if the rest of us demand it!
Isn’t it time to end this ludicrous tax collection system and the IRS?
There is going to be a vote on the FAIRtax in the House of Representatives.
We now have the opportunity to force all Members of the House to show where they stand. They can:
- Vote for the present income/payroll tax system or for the FAIRtax.
- Support the corrupt income tax and the IRS or eliminate it. It can’t be any simpler than that.
- Hide the true cost of their government or pass the FAIRtax and show everyone the true cost of government on each retail receipt.
- Support the largest transfer of power from government to the people, the FAIRtax, or not.
If Members think that the FAIRtax needs to be amended to address a problem, then they can propose the change. Don’t let reject the entire bill because it has a perceived “flaw” that can be addressed.
Please stand with us and demand that your representative support a much fairer, much simpler and much more efficient way to fund the government—the FAIRtax!
The FAIRtax doesn’t pick winners and losers. Because it taxes spending, not earnings, the FAIRtax lets everyone save for their retirement tax free.
The FAIRtax will allow us to TAKE BACK CONTROL.
The income/payroll tax system is broken and no longer working—we can’t repair it but we can replace it with the FAIRTAX!
Join us and TAKE BACK CONTROL OF OUR COUNTRY AND OUR LIVES—NOT WITH BULLETS BUT WITH THE ELIMINATION OF ONE OF THE BIGGEST THREATS TO OUR LIBERTY AND ECONOMIC PROSPERITY—THE INCOME/PAYROLL TAX.
We all should remember Edmund Burke’s warning that applies to our efforts to TAKE BACK CONTROL,
“Nobody made a greater mistake than he who did nothing because he could do only a little.”
We should also remember this quote from George Orwell's 1984, which, if we do nothing, may foretell your and your children's future:
“If you want a picture of the future, imagine a boot stamping on a human face—forever.”
WHAT CAN EACH OF US DO?
We can write letters and make calls to our elected representatives and attend Zoom town hall meetings demanding that if they really want to allow Americans to “TAKE BACK CONTROL”, the first step is to eliminate the income/payroll tax system and enact the FAIRTAX!
TAKE BACK CONTROL! Help us PASS THE FAIRTAX!
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