This study reports the results of an independent examination of the likely fiscal impact of two proposed tuition tax credit plans for New Jersey. The author was not asked to comment on any aspect of these bills other than their likely fiscal impacts on the state of New Jersey. This report neither endorses nor questions the specific language or design features of the proposed legislation.
Two tuition tax credit plans, the Parental Control and Involvement Act (PCIA) and the Educational Options Act (EOA), were submitted to the author for an independent examination of their likely fiscal impact. The author determines that the plans would reduce the after-tax price of tuition by between 32 percent and 95 percent, depending on family income, grade level, and choice of school.
The combined effect of the two tax credits under consideration would be to increase private school enrollment by 40 percent (from 207,275 currently to 290,958) by prompting 7 percent of students currently enrolled in government schools to transfer to private schools. State tax revenues would decline $585 million. Falling public sector enrollment would generate avoided costs of over $1.065 billion, for net annual savings to the state’s taxpayers of $480 million.
Part 2 summarizes the features of the proposed plans that are relevant to the plans’ fiscal impact. Part 3 estimates the effect of the plans on the after-tax price of private- school tuition. Part 4 estimates the effect of lower tuition prices on the supply of and demand for private schooling. Part 5 estimates the net impact on the state’s taxpayers of the tax credits and lower enrollment in public schools. Part 6 explains the difference between static and dynamic analysis and its relevance to this study. Part 7 is a brief summary and conclusion.
Three appendices appear at the end of this report. Appendix 1 is the text of the two proposed plans. Appendix 2 explains the choice of the coefficient of price elasticity of demand, and Appendix 3 explains the choice of a coefficient of price elasticity of supply.
