Education Tax Credits Aren’t New and Aren’t Just a Work-Around for Voucher Failure

Among the many things that were wrong or at least grossly misleading in Stephanie Saul’s hit piece on education tax credits is her claim that credits were invented in the late 1990s as some underhanded work-around for political and constitutional problems with vouchers. Here’s Saul’s creation myth for tax credits:

Vouchers … were unpopular among many voters and legislators, and several state courts had found them unconstitutional. Proponents decided to reposition themselves, and in 1997, Arizona’s Legislature adopted the first tax-credit scholarship program.

Credits are much more popular and legally protected than vouchers, but these characteristics are the result of important differences in function and principles. Moreover, the credit concept goes back more than forty years (more for deductions) and dominated the school choice landscape for over a decade. What changed in the late 1990s was an equity-focused twist on the concept, bringing the benefits of education tax credits to families without significant tax liabilities.

Reporters often mistake this relatively recent policy innovation for the origin of the credit approach and overlook credit advantages in policy principle and function in favor of the practical/cynical drivers of support for the policy. Sadly, Saul and many other reporters skip serious research in favor of collecting anecdotes that help drive their predetermined narrative.

So, a bit on the origins of education tax credits that Saul and even many school choice proponents miss entirely. (Note: Much of this material comes from my dissertation, which relies heavily on an excellent chapter in The Future of School Choice by Martin West, 2003.)

Despite the pedigree of vouchers as the first school choice proposal and the preferred mechanism of Milton Friedman, and despite the rise of progressive voucher plans in the late sixties and early seventies, education tax credits were arguably the dominant school choice policy from the 1970s through the mid-1980s.

Education tax credits first entered the federal agenda during the Nixon administration, during which he assigned the problem of the struggling private school sector to be studied by a panel within the President’s Commission on School Finance. The attention came in response to growing financial problems among the private school sector—in particular, among Catholic schools pressed by the rapidly declining numbers of priests and nuns who had traditionally provided a quality, low-cost labor pool.

Voucher policies, despite their libertarian lineage, were typically framed in progressive equity terms. Tax credits were typically been framed as a fiscal matter, a way to bring tax relief to the middle class. In taking up a proposal for a federal education tax credit, Nixon explicitly framed the issue as a matter fiscal prudence in support of middle-class families, placing “particular emphasis on the dire fiscal consequences should the nonpublic sector be allowed to collapse” (West 2003, 161). A subsequent panel report released in 1972 included a recommendation for a Federal income tax credit for private school tuition, but legislation would not be introduced until four years later. In 1976, a maximum $1,000 education tax credit for tuition at any school from elementary school to college and vocational school was defeated in the Senate by a surprisingly close 52-37 vote that included support from over a third of the Democrats and half of the Republicans. The fiscal argument for tax credits lacked the power it might hold at the state level, as the overwhelming burden of financing education was shouldered by state and local governments.

Efforts at the state level during this period were sporadic and uncoordinated. The attention of school choice supporters was directed toward federal policy and nothing approaching a school choice “movement” had yet developed.  Many of the state-level efforts throughout the 1970s attempted to enact tax credit and voucher policy through ballot initiatives and referenda (Catterall 1984).

The tax credit issue came back at the federal level during the Carter presidency with a bill introduced amidst discussion of a similar proposal for higher education. Although the bill passed narrowly in the House, it was defeated 56-41 in the Senate and faced a veto by Carter in any case. It was during this battle over k-12 tax credits that opposition from the government education establishment coalesced and began to flex to full extent its considerable power. Literally hundreds of lobbyists descended upon Capitol Hill to argue the interests of the recently formed National Coalition to Save Public Education and the National Education Association (West 2003).

The school choice issue was a relatively stable fixture on the national education agenda during the 1980s, first in the form of tax credits and shifting back to vouchers again in the mid-1980s. The hopes for school choice success at the national level peaked with Reagan’s arrival in the White House. Reagan and the Republican Party gave strong and explicit support for education tax credits throughout the 1980’s—with tax credits, but not vouchers, mentioned specifically in the Republican Party platforms of 1980, 1984, and 1988. Tax credits were the primary focus for the conservative policy world as well. The Heritage Foundation, an influential conservative think-tank, published a book in 1983 assessing the failures and accomplishments of the Reagan administration that had an education chapter proposing tax credits to help the middle-class supplemented by vouchers to help low-income parents (White 1983).