Tax Season

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It’s tax season. Accountants are losing sleep and the IRS is gearing up. Tax season isn’t exactly a joyful time for most people, but as the saying goes, there are only two things certain in life: death and taxes.

Taxation is not merely a tool for generating revenue and closing budget gaps, but a means of creating incentives and disincentives in the best interests of the nation as a whole. Perhaps if fiscal policy were utilized in such a commonsense manner, we could finally address some of the most important issues facing this country, including our education woes.

The latest education reform fad has been to improve teacher quality. Numerous studies have shown that a highly effective teacher can make all the difference regardless of a student’s race, ethnicity, or socioeconomic status. And while there are many highly dedicated and well trained teachers out there, their numbers are dwindling: In the 1980s, most teachers had 14 years in the classroom, but today’s teachers have been teaching for only a year or two and often leave the field within 5 years. The problem is not that existing teachers are unmotivated or lazy but that they lack proper experience, ongoing training, and dedication to their field. And if we hope to address this problem, then punishing bad teachers isn’t the way to do it; instead, we should be providing incentives to potential teachers in order to lure some of our brightest college students into the field of education.

Currently, almost half of our K-12 teachers came from the bottom 1/3 of college classes. Almost half of our teachers were the poorest performing college students in the country, and we wonder why our public school students don’t learn. Compare this with top ranked Finland, where only top ranked students can become teachers, and only 1 in 10 teacher applicants is selected.

It’s time to change the teaching profession, and fiscal policy is the place to start. In order to improve teacher quality, we must improve the quality of our teacher applicants. One way or another, we have to get our best and brightest students to actually want to become teachers. Raising teacher pay isn’t an option – who can afford it? Instead, we can use fiscal policy to create incentives. First, we might consider severely reducing the income tax rate for teachers. Currently, most teachers pay up to 25% in taxes (more than Mitt Romney). A teacher earning $40,000 per year really takes home $30,000 after taxes; states can’t afford to pay teachers more, but what if we eliminated income taxes for teachers? Combine this with other incentives, such as federal student loan deferment for teachers who stay in the field for a certain number of years or additional federal aid for students who wish to become teachers, and we might actually manage to recruit students from the top 1/3 of college classes instead of the bottom.

Yet teacher quality is just one of the many education problems which could be addressed through fiscal policy. Another suggestion would be to broaden the academic expenses that qualify for tax deductions. Currently, the primary education tax benefits include the American Opportunity Tax Credit (worth $2,500), the deduction for student loan interest (which has a limit of $2,500), and the deduction for college tuition and fees (which has a limit of $4,000). Contrast these restrictive limitations with the home mortgage interest deduction, which allows homeowners to deduct all interest payments on loans up to $1 million. While these education credits and deductions provide some small incentive for sending kids to college, the benefits total a very small fraction of what you’ll actually pay for your child’s higher education. And then there are the education expenses incurred long before college – test preparation to get your kids into college, private tutoring to make up for the failing schools, tuition for private schools when your public schools aren’t good enough, hundreds of dollars in school supplies each semester…and the list goes on. If we can all accept the premise that people should spend money on their kids’ educations, then why not allow the government to create incentives that encourage academic spending? Why not broaden the available tax deductions in order to encourage families to spend their money on education?

Education is hardly the only area that could be helped through commonsense fiscal policy solutions. For example, President Obama has recently proposed a potential fiscal solution to our housing woes. Under current programs, homeowners can refinance their mortgages to lock in lower interest rates, but only if their mortgages are backed by Fannie Mae or Freddie Mac. Under Obama’s proposal, this benefit would be extended to all homeowners who are current on their mortgage proposal, which would help to avoid dumping thousands of additional foreclosures on an already severely depressed housing market. Unfortunately, Obama’s proposal will likely never see the light of day because it must pass through Congress in order to become law. Allowing homeowners to refinance at lower rates through any bank would mean redistributing money from the banks to the people – and Congress has already proven that it is only willing to engage in wealth distribution when Wall Street benefits.

Another example has to do with green energy; President Obama has also proposed tax incentives to encourage businesses to upgrade their commercial buildings to make them more energy efficient. This proposal would not only encourage green practices – something that is good for everyone on the planet – but would also help to create jobs, thereby placing money into the hands of American consumers. Yet again, Congressional resistance is inevitable.

Fiscal policy is a powerful governmental tool when used in the right way. Unfortunately, the political back and forth of our partisan government has rendered commonsense fiscal solutions all but impossible. We can only hope that common sense will reign in Washington someday soon.