The Tax Credits Program for School Choice

Studies | Education

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


Who Would Benefit?

The Tax Credits Program for School Choice offers gains for schools, students, parents, cities, taxpayers, education entrepreneurs and businesses concerned about education. 

"This proposal could be described as the 'Government Schools Relief Program,' since government schools would have more money to spend per student."

Benefits for Government Schools. If, as government school officials often claim, more money is the answer to their problems, then tax credits for school choice would help solve those problems for, as shown below, under almost any reasonable scenario government schools would gain. In fact, this proposal could be described as the "Government Schools Relief Program." Since most of the money would remain when pupils leave a government school, per pupil spending on the remaining students would rise. In addition, a smaller enrollment would alleviate the need for larger classes and expanded capital budgets for government schools.

Benefits for Students from Low-Income Families. Rather than giving money to government, taxpayers could help children from low-income families achieve a better education. This program would enable all taxpayers to decide where to send the taxes they owe. Although benefactors could receive a tax credit of no more than $1,000 per child, many might contribute more and deduct the contributions as charity on their federal tax returns.

The $1,000 tax credit likely would allow a large fraction of current government school students to attend nongovernment schools if they chose to do so. The tax credit would not guarantee a Cadillac education for everyone, but it would afford many more students a good-quality Chevy. Even those who chose to stay in government schools would be better off. As noted above, those children would benefit from the increased per pupil spending.

Contributions to private scholarship programs offering tuition assistance to children of low-income parents also would be eligible for the tax credit. The Children's Educational Opportunity Foundation (CEO America), a nationwide umbrella group of private voucher programs based in Bentonville, Ark., reports that more than 13,500 children from low-income families are in the programs currently in operation in 30 cities, including Washington, D.C., Dallas, Indianapolis, Philadelphia, Atlanta, San Antonio, Oakland and Little Rock. Aid ranges from $3,000 per student in Atlanta to $750 in San Antonio and Oakland.8 In these private voucher programs, the families pay a share of the tuition -- usually about half. Even so, more than 20,000 still in government schools are on waiting lists.9 Of course, many private and religious schools offer tuition assistance to students. For every one of these programs, the demand for assistance far exceeds the supply.  Tax credits for school choice could expand the supply.

Benefits for Parents. The program would give parents more options. An important reason why more children do not attend nongovernment schools is financial.10 Many parents cannot afford to pay both taxes and tuition. Tax credits would partially remedy that unfairness. Homeschooling parents would also get tax relief. And unlike voucher proposals that target only children in low-income families, tax credits would benefit all parents.

Even those who chose to leave their children in government schools would gain influence over the quality of curriculum and teaching there. School officials, keenly aware that the parents had a choice of schools, would be strongly inclined to increase parental satisfaction.

"More middle-income families would be induced to stay in the cities." 

Benefits for Cities. Education tax credits could become an important economic development and neighborhood preservation tool for inner cities. To survive, cities need taxpaying residents and businesses. But because the quality of so many urban schools is so poor, many families leave the cities in search of better schools in the suburbs. That migration in turn affects where businesses locate. The tax credit proposal developed here would induce more middle-income families to stay in the cities and send their children to nongovernment schools if they were dissatisfied with the available government schools.

Benefits for Taxpayers. This proposal moves students out of high-cost into low-cost schools. Moreover, capital and operating budget pressures due to projected enrollment increases would decrease. The need to build more government schools and to hire more teachers would diminish. In time, as the taxes raised proved more than sufficient to educate children in government schools, elected officials would face pressure to lower tax rates.

Benefits for Education Entrepreneurs. People and groups wanting to start new schools likely would find it easier to raise the capital to do so when the new tax credits increased the demand for nongovernment schools. The growth in nongovernment school population would stimulate innovation in the private education market.

Benefits for Businesses Concerned about Education. For the last 15 or 20 years, many businesses have supported school reform efforts through partnerships, loaned executives, donated equipment and outright cash grants. Although those efforts may have improved the education of individual students, government school systems have resisted fundamental reform and remain inefficient. Tax credits would encourage both large and small businesses to make an immediate difference in education -- rather than enduring years of wrangling while school reform legislation is hammered out and charter schools approved. Without delay they could:

  • Set up schools for their employees' children and others; the schools could even specialize in teaching skills of particular use to the business sponsor.
  • Use their education tax dollars to pay tuition at existing nongovernment schools they deem worthy of support.
  • Contribute to private scholarship funds.

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