The school choice movement is gaining in complexity as lawmakers increasingly opt for tax credits instead of vouchers as a way to help citizens, poor and otherwise, pay private school tuition for their children.
Six states-Minnesota, Iowa, Illinois, Arizona, Pennsylvania, and Florida-already have laws that give taxpayers a credit for some education expenditures when they pay their taxes, though not all cover private school tuition. These tax credit plans come in two basic flavors. In some states (Illinois, for instance), individual taxpayers receive a credit against their tax liabilities for at least some of the private school tuition they pay for their children. In other states (Arizona, Pennsylvania, and Florida), individuals or corporations can receive tax credits for donating to special funds that award private school tuition scholarships to low-income children.
Here's a quick look at how tax credits work in a few states:
1) Tax credits for tuition payments:
a) Minnesota was the first state to offer tax credits for education-related spending. The credit was upheld by the Supreme Court in 1983. Today families can get a credit of up to $2,500 a year for almost any education-related expense except private school tuition. (Private school tuition is, however, tax-deductible.)
b) In Illinois, nearly 134,000 families have taken advantage of the state's tuition tax credit, a break aimed at helping people send their children to private school by allowing families to subtract up to $500 from their tax bill for private school tuition expenses.
2) Tax credits for donations to scholarship funds:
a) Arizona's 1997 tax credit law-recently upheld by the state Supreme Court-allows individuals to make contributions of up to $500 to scholarship organizations and receive a 100% tax credit. The scholarship groups collect donations and award scholarships.
b) In Florida, corporations receive full credit against their tax liabilities for donations as large as $5 million to scholarship funds. (Total donations statewide under the program cannot exceed $50 million.)
c) Earlier this year, Pennsylvania made it possible for corporations to get a tax break in return for donating up to $100,000 to scholarship organizations that assist low and moderate income families. Corporations receive a tax credit of 75% of the amount of their donation, 90% if the company agrees to make the donation for two consecutive years. Once $20 million has been raised statewide, however, the tax credit will not be available for any additional donations.
Which kinds of tax credit plans are likely to raise the most money for scholarships, funds based on corporate contributions (Florida, Pennsylvania) or those based on individual contributions (Arizona)? Corporations have deeper pockets and are capable of making much larger donations, but pressure from teachers' unions and other organizations may discourage them from supporting private education. Individuals don't have to worry about the PR implications of supporting school choice, but few can write such big checks, and they may also be less likely to know about a tax credit law.
Tax credits are seen as superior to vouchers in some political and policy circles. Bret Schundler, the Republican candidate for governor in New Jersey and one of the standard-bearers for school choice, is now pushing for tax credits instead of vouchers. The Cato Institute has published a series of reports on tax credits, including one, The Arizona Scholarship Tax Credit: Giving Parents Choices, Saving Taxpayers Money, released just this week. (A summary appears below.)
Part of what makes tax credit plans appealing is their indirectness; it's difficult for opponents to complain about money being "drained" from public schools or to charge the government with violating the separation of church and state if people's taxes are simply being lowered. In contrast to a voucher plan, the government is not sending money to a private school, but simply taking in less revenue. Tax credits ordinarily involve less government involvement with private schools than voucher programs do, and therefore less tampering with those elements that make private schools successful.
Yet many voucher supporters are deeply suspicious of tax credit plans. Tax credits for families paying private school tuition (as in Illinois) benefit families who pay taxes and can afford private school tuition, but may not help poorer families. Tax credit laws can be difficult to understand. If credited donations remain capped (as in Florida, which only allows $50 million a year in donations), only a fraction of eligible kids might be able to receive scholarships to attend private schools.
But tax credits might be the best we can do after the dismal election-day performances of voucher ballot measures in California and Michigan. And the speed at which so many states are now passing (or considering) tax credit laws is heartening, more so, certainly, than the pace of voucher progress today. -Matthew Clavel
"School-Choice Alternatives," by Dan Lips, National Review Online, September 6, 2001,
"Extra Credit," The Wall Street Journal, September 5, 2001, (available only to subscribers)