Why Education Tax Credits instead of Vouchers?

Tuition voucher programs may be important short-term stepping stones toward our ultimate long-term goal. However, I believe that education tax credits should be our ultimate long-term goal because they are a better way to deliver parental choice in education for the following seven reasons.

With education tax credits,

1. the government doesn’t have to give up money that it already possesses,
2. the funds are never “public money”,
3. the government can’t use the money for other things besides education,
4. tax credits are well established public policy, currently being used to encourage energy efficiency, research & development, etc.
5. private schools will not fear accepting the scholarships,
6. only the funds of the taxpayer using the tax credit go to private schools, not other taxpayer’s tax dollars, and
7. the transition time, from the current system to a widespread school choice environment, is longer, thus making the transition smoother.

Here are the seven advantages in detail.

1.  Education tax credits keep the government from getting the school choice funds, while vouchers take money from the government after it has already received it.  During FDR’s administration in the 1930′s, the government knew that it would be difficult to depend on citizens to write checks to the government to pay for the new (in the 1930′s) payroll tax.  So FDR’s administration invented the payroll deduction system.  It knew that psychologically it is more painful to give up money that you already possess, than it is to not receive it in the first place.

Education tax credits are like payroll deduction for the government.  Since tax credits are deducted from your tax bill before you pay it, the government never has possession of the deducted tax dollars.

However vouchers are not like payroll deduction.  Tax bills are paid in full, so that the government possesses the tax dollars.  Then the government has to write a check (voucher) to the private school from the money that the government already possess.  Psychologically this is much more painful than tax credits.

2.  Education tax credits are never deposited in a government bank account, so the (deducted) money never becomes “public money.” All laws at the federal level (First Amendment) and at the state level (“Blaine” amendments), prohibit “public money” from being used in religious schools.  Since education tax credit money never becomes “public money”, then these laws don’t apply.  This makes education tax credits much easier to defend against litigation trying to strike down the law.  All current education tax credit programs in other states have withstood litigation trying to strike down the programs.

3.  Since the government never possesses tax credit dollars, it cannot use part of the funds for “overhead expenses.”  We all know that accounting procedures used by the government for keeping track of their “public money” are rather “creative.”  Most of the tax revenue that we pay gets lost in the government bureaucracy and is never seen again.  Tax credit dollars never fall prey to the bureaucracy because the government never possesses the money.

Since the government never possesses tax credit dollars, the program is valuable policy simply for shrinking the size of government, regardless of how the funds are used in the private sector.  Education tax credits provide the additional bonus of school choice, a desperately needed policy for the students of America.

4.  Tax credits are established pubic policy, whereas vouchers are not.  Examples of current tax credits are for corporate research and development expenses, hybrid car purchases, and energy efficient homes.  The only established policies remotely similar to vouchers are the GI Bill and food stamps, both of which are very distant relatives.

5.  Many private schools have expressed their fears of accepting voucher money, since it is “public money” to which the government can attach “strings” (restrictive conditions on receiving the funds.)  Education tax credit programs create “Scholarship Organizations,” which are private 501-c3 foundations which awards “private vouchers” (scholarships) to low income students.  Since this is private money coming from a private foundation, private schools will feel much more comfortable about accepting these funds.

6.  Sometimes opponents of vouchers object by saying, “I don’t want my tax dollars spent at XYZ School.”  However, tax credits completely preempt this argument.  When a particular taxpayer takes advantage of a tax credit, it is only his taxes that are being credited, not anyone else’s tax dollars.

7.  There is one aspect of education tax credits that, in the short run, can be perceived as a disadvantage compared to vouchers.  If voucher legislation is passed and qualifying families quickly become aware that vouchers are available, then the program can be used to help many students in a short time.  However, if tax credit legislation is passed, there are no scholarship dollars immediately available for low income families.  In addition to informing low income families about the program, the Scholarship Organizations must be established, and the taxpaying donors must be informed of the opportunity to take advantage of the education tax credit.  So the lag time, between passing the legislation to having it widely implemented, is much longer with a tax credit program.

But I see this “short-term problem” as a long-term advantage.  This long lag time for tax credits means that the opponents of school choice will perceive tax credits as a threat at some point in the future, while vouchers will be seen as an immediate threat.

A concern of the uncommitted voters is the “unknown transition period” from the current policy to a school choice policy.  For example, “What will happen to the kids who currently attend a public school that fails to compete in the school choice environment?”  Since tax credits have a longer lag time, the transition from the current system to a school choice environment is more gradual, which gives more time for public schools to adjust.

In summary, education tax credits have a clear advantage over school vouchers, and this is why my focus is on tax credits.  For more information about education tax credits, read this article by Adam B. Schaeffer at the Cato Institute.

10 Responses to “Why Education Tax Credits instead of Vouchers?”

  1. Charlotte Beecher Says:

    I am the Executive Director of a School Tuition Organization (STO) in Arizona. Our original tax credit law went into effect in 1998. It took a few years before tax payers began to understand the program… and even still, only 3-4% of eligible citizens participate. We were the first in the nation… hopes are that you can benefit from our experiences.
    * Craft your legislation carefully to reduce opposition in the courts
    * Garner as much bi-partisan support as you can… as soon as you can
    * Invest money in educating the public about the advantages children experience with school choice very early on!!
    * Good luck and best wishes.

  2. Parental Choice in Education Says:

    Dear Charlotte,
    Thank you for your kind note. I started one of the “private” voucher foundations, Austin CEO Foundation, but I am focusing most of my time on bi-partisan grassroots team building.
    Our education funds come from a school district property tax that has become a labyrinth of laws since the courts have tried to make school funding equal throughout the state. I’m coming to realize that basic tax reform has to be part of the bill because a tax-credit against our school district property tax is like trying to fill all the holes in a block of Swiss cheese!
    I have primarily been working from sample tax-credit bills published by the CATO Foundation.
    Also, I would recommend a policy report written my Brooke Terry from Texas Public Policy Foundation.
    http://www.texaspolicy.com/pdf/2010-04-PP10-EdTaxCredits-bt-pp.pdf
    In the report, she gives a one page description of every tax credit/deduction program in the USA.
    Thanks again for thinking of me. All of us in the trenches in Texas are encouraged by hearing about Arizona’s success. We dream of that day when we will be where you are.
    Bob Schoolfield

    • Jose Says:

      From my perspective as a hroisty teacher, I don’t think I can ever bring myself to believe large businesses can ever operate in a fair and legal way. It just isn’t the track record of capitalism.Oh by the way, you guys must be very brave to go out like that.

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