The Tax Credits Program for School Choice

Policy Reports | Education

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

Administering the Program

The tax credits program would be reasonably simple to administer. One line would have to be added to the forms of states with personal and business income taxes. Local administration would be equally simple.

Administering the Program: State Tax Credit. A simple tax credit schedule, similar to those used for existing Pennsylvania tax credits and for property tax and rent rebates, would be developed. [See the appendix (part 1) (part 2) (part 3) for an example.] Taxpayers could claim the $500 state tax credit (assuming the credit were divided equally between state and local taxes) only up to the amount of state taxes actually paid (business or personal). The tax credit could be applied against almost any tax that is deposited into the general fund and allocated to the state department of education budget. These could include personal income taxes, corporate net income taxes and inheritance taxes. The tax credits would be deducted from department of education accounts that currently assist local government schools. States without these taxes might have to take a slightly different approach to give the credits.

"The additional administration required for the credit should be minimal once it is set up."

Administering the Program: Local Tax Credit. The program might create additional or different administrative duties for local tax collectors. However, in this age of computers, databases and private tax collection contractors, once it is set up the additional work and expense should be modest. If local school district support is from real estate taxes only, the additional administration should be minimal. The property tax bill could include the above-mentioned tax credit schedule certifying that taxpayers are homeschooling their children or paying tuition at a nongovernment school for their children or someone else's. Taxpayers could then subtract $500 per child from their property tax bills up to the full amount owed.

If the school district is supported from additional local taxes, such as earned income and occupation taxes, a central tax collector could collect all local taxes, and all tax credits could be claimed at once on the form described. To avoid bureaucratic and administrative difficulties, the central tax collection function could be privatized. Taxpayers could then subtract $500 per child from their combined real estate, earned income and occupation tax bill up to the full amount owed.

Administering the Program: General. For auditing and record-keeping purposes, taxpayers claiming the credit would be required to provide either (for parents) the child's Social Security number or (for nonparents) a number assigned by the school to the child who was benefiting. Schools would issue an annual statement (like the federal government's W-2 employment statement) to those taxpayers who plan to take the tax credit. [See the appendix (part 1) (part 2) (part 3) for an example.] Like any tax collection process, these tax credit claims would be subject to random audits.

Read Article as PDF