Admini-
stering the Program

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. 

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.

MINNESOTA. For more than a decade, Minnesota has allowed taxpayers, in computing their state income tax, to deduct expenses for tuition, nonreligious textbooks and transportation for their children. The deduction, originally up to $650 for elementary schools and $1,000 for secondary schools, was recently increased to $1,625 and $2,500. 

It can be taken for expenses in any nonprofit secular or nonsecular school or in any government school. Parents of children in government schools also can deduct supplemental, education-related expenses. In June 1997, Minnesota added a "refundable" education tax credit of $1,000 per child or $2,000 per family for families with incomes of $33,500 or less. The credit does not apply to private school tuition. 

IOWA. An Iowa law passed in 1987 allowed taxpayers to itemize and deduct up to $1,000 of textbook and tuition expenses. It also provided, for taxpayers who use the standard deduction, a credit of 5 percent up to $1,000 for these expenses for each dependent. The law applied to both government and nongovernment school expenses, but only for taxpayers whose net income was $45,000 or less. In 1996 the Iowa Legislature replaced this law with a new statute that eliminated the deduction and raised the tax credit to 10 percent of the first $1,000 the taxpayer pays for tuition and textbooks, with a maximum credit of $100 per child. The new law allows the credit regardless of net income. 

ARIZONA. Arizona passed an education tax credit law to take effect in 1998, but it takes a completely different approach. Taxpayers can take a credit of up to $500 for donations to charitable organizations that provide scholarships for children to attend private or parochial schools -- but the donations cannot be used for the taxpayer's own dependents.

ADVANTAGES OVER VOUCHERS. Some critics say that giving "government money" (vouchers) to private and religious schools is wrong. A related criticism is that it is unconstitutional. Although opponents of educational freedom are sure to take any reform to court, tax credits have overcome First Amendment church-state objections. The original Minnesota law withstood a court challenge in 1983.¹¹ In holding that the statute did not violate the First Amendment's establishment clause, even though it primarily benefited religious schools, Chief Justice William Rehnquist wrote for the majority:¹² 

Finally, private education institutions, and parents paying for their children to attend these schools, make special contributions to the areas in which they operate. Parochial schools, quite apart from their sectarian purpose, have provided an education alternative for millions of young Americans; they often afford wholesome competition with our public schools; and in some states they relieve substantially the tax burden incident to the operation of public schools [emphasis added]. If parents of children in private schools choose to take especial advantage of the relief provided by [the statute], it is no doubt due to the fact that they bear a particularly great financial burden in educating their children.More fundamentally, whatever unequal effect may be attributed to the statutory classification can fairly be regarded as a rough return for the benefits, discussed above, provided to the State and all taxpayers by parents sending their children to parochial schools.

Some advocates fear that government control of nongovernment schools through regulations may come with vouchers. Any time government passes out checks, they say, it adds a bureaucracy. Even with statutes to prevent new interference, there is cause for concern. The concern is minimized with tax credits, since the relationship between the government and students in nongovernment schools would not change and people would clearly be spending their own money. 

ADVANTAGES OVER CHARTER SCHOOLS. Legislating tax credits would be faster and more efficient than building charter schools. Years pass while lengthy, complicated and restrictive charter school legislation is hammered out and new schools are approved. With tax credits, educators, parents, nonprofits, religious organizations and businesses could set up new schools the day after a state approved the program. The stimulus of the tax credit alone would increase the demand for nongovernment schools. 

ADVANTAGES OVER PUBLIC SCHOOL CHOICE. Public school choice does not give parents real choice; it offers only a choice of schools run by the same bureaucratic monopoly. It does not address the wishes of parents who would like their children to attend schools that embody their values. It does nothing to control education costs for taxpayers. Tax credits would do all those things. 

ADVANTAGES OVER CONTRACTING OUT. Although contracting out educational services by the local school district can have some benefits -- reduced costs, increased quality, better accountability -- a third-party bureaucracy still purchases the services. Parents have little control. The tax credits program would increase their control significantly. 

OTHER ADVANTAGES. Tax credits offer two other advantages: better accountability and less politics. An important administrative problem for charter schools or contracting out is accountability. Who ensures that the government's money is well spent and that children get an education that satisfies their parents? However localized the governing bodies are, charter school and contracting-out plans grant the greatest measure of control to a third party -- not to parents. Decisions are likely to be political, not educational, cost-efficient or value-rich. 

The best mechanism for accountability is the marketplace, monitored and controlled by consumers acting in their own self-interest. Parents participating in the tax credits program would exercise consumer power, choosing the best education available for their children. 

Tax credits would blunt many of the political questions about school choice, such as: 

• How would we determine which students get voucher money? 
• Should government voucher money be used in schools that teach witchcraft or racial and ethnic hatred? 
• How would we decide who can set up a charter school and who cannot?