I was reading this thought-provoking article in the New York Times about the actual economic meaning of making charitable donations tax-deductible. The article is worth discussing on its own merits, but I want to talk about the implications it has for private Jewish education.
The bar for becoming a tax-exempt organization is set relatively low. Among the examples quoted in the website is an organization to help S&M fans who lost their gear to Hurricane Katrina get new whips, chains, manacles, and ball-gags.
Many private schools have ancillary foundations that raise funds to support the parent institution. Here’s my plan. Let’s say that tuition is $20,000 at the local Yeshiva (or, Hebrew Academy, lo aleinu). You can set up a foundation to support the Yeshiva, and only offer admission to members of the foundation. Have the yeshiva charge $5,000 tuition, and have membership in the foundation cost $15,000 per child. Voila, 75% of tuition at the Yeshiva is tax-deductible!
In the past, I opposed tax relief for private school tuition. Let me clarify the apparent contradiction. I have no problem with taking advantage of current laws and tax avoidance techniques, I just think we shouldn’t vote in new benefits for ourselves without considering he broader community.. That’s our system, and rational people should try to pay as little in taxes as legally required. There is no legal or ethical requirement to be a sucker on taxes and pay more than what is legally required. It’s the government’s job to make sure that the tax system is structured appropriately to collect what is needed.
The other key difference is that my plan makes tuition dollars deductible from your federal income tax as well as your state income tax, and it does not limit the deduction to families making under $150k.
I’m sure that there’s an accountant out there, or a tax lawyer, who will explain why this idea doesn’t work or is illegal. And yes, if all private schools used this we’d have to re-write the tax code. But that’s what I’ve been saying all along! If this is legal, let’s do it!