When first proposed, the Coverdell Education Savings Account(ESA) generated the familiar bombast characteristic of public policies that offset private-school tuition. The late Teddy Kennedy declared, in 1998, that the accounts would “privatize education” because families who saved for private or parochial K-12 schooling could enjoy tax-free gains on their investment. Then-President Clinton argued that only wealthy families would reap the rewards, which would cost the federal government billions, and later made good on his promise to veto the measure when it passed.
From its inception, the Coverdell ESA encouraged families to save.
George W. Bush resurrected the bill when he took the Oval Office, but the late Georgia Senator Paul Coverdell died before he could see his effort enacted into law. A decade has passed and the tax break is scheduled to expire on December 31, 2012. Lawmakers should extend the program’s benefits.
From its inception, the Coverdell ESA encouraged families to save. It never really was a voucher, as Kennedy had claimed. Unlike a tax-credit scholarship, contributions to the Coverdell aren’t tax-deductible. Rather, families enjoy tax-free earnings on their investments so long as they use the money to cover qualified education expenses (which can include religious schooling).
Additionally, the program’s cost has barely amounted to a rounding error to the federal government. The New York Times reported last week that the Coverdell tax breaks would likely deprive the United States Treasury of just $17 million this year.
But that number tells another truth: The costs are so...