The Tax Credits Program for School Choice

Studies | Education

No. 213
Sunday, March 01, 1998
by Linda Morrison


Executive Summary

About 92 percent of all money spent on elementary and secondary education in the United States is raised by taxes and goes to government schools. Because of the virtual government monopoly on education below the college level, parents have very limited options. Unless they can afford to pay for a private school in addition to paying taxes for government schools, their children must attend government schools even if those schools fail to meet the children's educational needs, are unsafe or lack discipline. These problems are especially acute in low-income inner-city neighborhoods.

This study proposes the Tax Credits Program for School Choice, offering tax credits to taxpayers who pay tuition for children to attend nongovernment schools. Using a $1,000 tax credit per child to illustrate the general concept, the program would work like this:

  • Taxpayers - both individuals and businesses - would receive a dollar-for-dollar tax credit up to a maximum of $1,000 per child for money they spend on tuition expenses at any qualified nongovernment school.
  • Those giving to charitable foundations that pay tuition for children from low-income families would also be eligible for the tax credit.
  • Parents of children schooled at home also could reduce their taxes by $1,000 per child.

Every dollar of tax credit claimed would reduce revenue to state and local governments. This revenue loss would be paid for by a dollar-for-dollar reduction in the budget of the school district in which children attending nongovernment schools live. Taxpaying parents whose children already attend nongovernment schools could claim the credit. If as few as 5 percent of students transferred out of government schools, per pupil spending would increase in districts in most cases, since the $1,000 revenue lost to the government schools would be far less than is being spent now.

The $1,000 figure is used for illustrative purposes, but states might choose a higher or lower amount. However, the credit should be limited to an amount well below per capita spending in government schools for two reasons: (1) to allow per pupil spending in the government schools to increase each time a child transfers to a nongovernment school and (2) to discourage nongovernment schools from raising their tuition and fees in response to the tax credit program.

In addition to giving parents more control of their children's education by making nongovernment schools more affordable and making more money available to spend on children who remain in the public school, the Tax Credits Program for School Choice would:

  • Help urban areas hold on to taxpayers who are now moving out of cities in search of better schools in the suburbs and businesses that follow taxpayers to those suburbs.
  • Eventually reduce local education tax rates as the taxes raised prove to be more than sufficient to educate children in government schools.
  • Stimulate competition among all schools, creating incentives to improve the quality of education everywhere - especially in low-income areas.

Since people would be spending their own money, not "government money," the program should remove constitutional questions about tax funding for religious schools and preclude increased government oversight of private schools.


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