Last month I explained why the movement for parental rights and privatization in education is poised to take off in 2002. I promised to discuss in this month’s essay why advocates of tuition tax credits need to decide whose side they are on. Let’s get it on.
The Tax Credit Option
A typical education tax credit allows parents to deduct from their state income taxes some or all of what they pay for private school tuition. Some plans allow unrelated individuals and businesses to participate too, by claiming tax credits for some or all of what they contribute toward a child’s educational expenses or to a qualified scholarship-granting foundation. To avoid constitutional challenges, tax credit plans usually also provide tax credits for contributions to public schools.
I agree that tax credit plans are a step in the right direction. I’ve helped design and evaluate tax credit plans. But here’s the rub: To make their case, some tax credit advocates are repeating the criticisms of vouchers that teacher unions and statists use, such as the bogeyman of onerous regulation of private schools.
It is my contention that we would all be better off if tax credit advocates would make their case without dissing vouchers. They should favor both vouchers and tax credits … or they’ll be used as pawns by anti-choice and anti-privatization forces in the months and years ahead.
Not Enough to Matter?
In practice, it is impossible to design education tax credits that produce substantial financial relief for most parents. The annual state income tax liability for even middle-income taxpayers seldom reaches 10 percent of the annual tuition for a single student charged by a typical private school.
Consider your own finances. How much did you pay, after your current deductions, in state income taxes last year? Would getting that amount back at the end of the year make it possible for you to choose private schools for your children?
A credit against the national income tax would provide more substantial relief, but ignores the fact that federal funds equal less than 7 percent of total government spending on education. Do conservatives and libertarians want that percentage to increase dramatically? If not, then a federal tuition tax credit would make a mockery of the notion (already stretched thin by most tax credit schemes) that the money taxpayers get back through tax credits would otherwise have gone to pay for the public schools their children would have attended.
If individual tax credits can offer only token financial relief to parents, then tax credits must be offered to other taxpayers to raise enough money to matter. But even such extended plans are unlikely to raise enough money to help more than a small percentage of students leave public schools. A “model” tax credit plan for New Jersey, for example, would enable fewer than 7 percent of students currently in public schools to attend private schools … and that’s my calculation. The state’s Office of Legislative Services claims only 1 percent would switch.
States that have had education tax credits for at least a year–Arizona, Illinois, Iowa, Minnesota–report levels of participation ranging from just 2.3 percent to 5 percent. The amount of money shifted from public to private schools each year ranges from $8 million to $51 million. In every case, that is less than 1 percent of the amount spent by state and local governments on public schools.
Even the most patient school reform advocate should look at those numbers and conclude: It just isn’t enough.
No Better in Principle
To most voters, a tax credit differs from a voucher in four ways: It provides relief after tuition is paid rather than before; the amount of relief varies according to parental income, rather than being of a uniform amount; it exposes individual taxpayers to the increased threat of a tax audit; and it gives parents no added authority over how local public schools allocate their spending. Most voters–and perhaps even most libertarians and conservatives–are likely to view all four differences as strikes against tax credits.
Some conservatives and libertarians think tax credits are more “principled” than vouchers because they are not an “entitlement.” But no tax credit plan now in effect or under consideration touches or would touch the entitlement to a publicly financed K-12 education. No plan in effect or under consideration would mandate that public school budgets be reduced, dollar for dollar, by the amount claimed in credits.
If an education tax credit doesn’t equal the amount of money the state saves by not having to educate the taxpayer’s children, then it differs little in principle from a voucher. Some parents would still be subsidized by others, and those who have no children would still have to pay for the schooling of other people’s children.
While it is widely asserted in conservative and libertarian circles that education tax credits pose less threat of increasing regulation of schools than would vouchers, the argument is hollow. Individual taxpayers are subject to tax audits, and in the course of those audits, participating private schools can be compelled to prove they are “qualifying entities.” This is more intrusive for individual taxpayers, and no less intrusive for schools, than vouchers would be.
States are constitutionally free to regulate private schools almost at will, without the excuse of vouchers. In fact, religious schools receiving vouchers have greater, not less, constitutional protection from regulation than unsubsidized schools, thanks to U.S. Supreme Court decisions prohibiting “excessive entanglement” of church and state when public funding is provided.
Unintended Consequences
Plans that give tax credits to unrelated individuals and businesses have the unintended consequence of making private schools depend on scholarship-granting entities, rather than parents, for funding. The New Jersey plan, for example, would replace two out of every three dollars of private school tuition with foundation scholarships. Tax credit advocates have apparently given little thought to the perverse incentives this creates.
The scholarship-granting entities compete, if they compete at all, for contributions from philanthropists. Creating this new class of third-party payers disempowers parents the same way HMOs disempower health care consumers. Also like HMOs, these intermediaries are ripe targets for government regulators looking to impose restrictions on participating schools. Critically, there is no reason to believe these nonprofit entities, in the long run, would serve the interests of parents rather than the schools they help to finance or the taxing authorities for whom they collect potentially sensitive data on earnings and tax liability.
Conclusion
If this is the first critique of education tax credits in a conservative or libertarian publication you’ve read, don’t blame yourself. Voucher advocates (including this writer) have seldom criticized tax credits, pursuing instead a “big tent” philosophy that anything that encourages choice is good. Some tax credit advocates, however, don’t accept this ecumenical approach have frequently criticize vouchers.
By repeating unfounded criticisms of vouchers voiced by opponents of school choice, tax credit advocates have placed themselves on the side of those who oppose all forms of privatization and increased parental choice in education. If they believe their criticism of vouchers will assuage critics in the media or the education establishment, they are sorely mistaken. Their actions, like all acts of appeasement, are hurting the movement they claim to be part of.
For all these reasons, tax credit advocates ought to be vocal in their support for school vouchers as well … or else sit this battle out.
