Forget the Election … Education Tax Credits Will Save the Republic and Bring World Peace!

Let’s face it : everyone is sick of election prognosticating and there’s nothing left to say in any case (until the results come in and politicians and pundits begin to spin again).  So let’s turn to wonky school reform spats that just won’t die!

Sara Mead at Edpresso just doesn’t buy that education tax credits are the best thing going in education reform, so we’ll have to get more detailed.

She cannily (given that we’re libertarians here) attacks tax credits on rational choice/econ grounds, arguing that dollar-for-dollar tax credits will reduce the “cost to the donor and his or her incentive to hold scholarship foundations accountable.”  This is certainly true compared with someone in a system without tax credits that has to make the decision to pay twice for education – their incentives to hold the school accountable are large due to the significant additional investment. 

But her analysis overlooks many important factors. Most importantly, it fails to compare incentives in a tax credit system to those of the relevant alternative – our current government-run school system. 

There are many costs and incentives beyond fiscal ones.  A business that donates money to a Scholarship Granting Organization, it is true, reallocates money from the government to a non-profit, and therefore does not incur any additional monetary cost in this very simplified scenario.  That does not mean there are no costs to the company.  They must identify SGOs to which they wish to donate and comply with the required paperwork to do so.  This cost may be offset by community good will and publicity (or added to by criticism from school choice critics).  In addition, they have a long-term interest in the performance of both the SGO and children and schools they fund because their company name is now associated with them.  Donating to SGOs that fund failing schools will provide no community goodwill and is likely to draw criticism.

Another reason why businesses participate in scholarship donation programs is because they recognize that many students are emerging from our K-12 public schools unprepared to succeed in work or higher education. In addition to its civic benefits, ensuring that children are better educated directly benefits the donor businesses themselves. Better educated students mean a stronger labor force from which businesses can recruit new employees. Those businesses would thus have an incentive to direct their money to the best-managed SGOs.   

Businesses using donation tax credits have very significant interests in holding SGOs and schools accountable for educating children, interests that would easily justify the costs of choosing and donating to SGOs. 

Individual donors face the same costs of donating, and will be invested with personal incentives to make sure that they are not wasting their money and the time they have devoted to the process on SGOs and schools that fail.

Again, the reason an individual would make a donation under an SGO program is that that individual is dissatisfied with the quality of education on offer in the public schools.  Donors with that sort of motivation are hardly likely to pick SGOs at random.  Furthermore, just as the media now cover the school beat, so too would they cover SGOs, so the cost to donors of finding out about SGO operations would be low – they’d just have to pick up the paper.

It may be true that the choices of what one can do with a tax credit are severely limited compared to the universe of unrestricted choices.  But the donor will still face a choice between many SGOs, individual children, and sending the money to the state for it to disburse for her.  The donor is still making a decision regarding how to spend her money – it is simply a restricted choice set.  But the donor will still have an incentive to hold organizations accountable for results, and will have an easier time responding to information.  A donor can easily send next year’s tax credit to another SGO. 

Sara compares these incentives to hold schools accountable with donations made without the benefit of a tax credit.  Certainly, in the latter case, the incentive is large because the cost to the donor is large.  But a cost can be too large, and in this case it is – otherwise we would be awash in private scholarships.  People must currently pay twice to help the disadvantaged – once through state taxes and then again through donations.  It’s no surprise that many do not do both, even when the state misspends their tax dollars.  Education tax credits reduce the costs but not the incentives to help the disadvantaged, thereby ensuring that more of the disadvantaged will be helped.

The appropriate comparison is not with the incentives of donors who cannot claim tax credits.  The appropriate comparison is with the incentives and ability to hold schools accountable under the current system versus other proposed systems.   Sara recognizes this, but doesn’t consider the strength of the incentives within the current or proposed government-run systems (emphasis in the original):

More significantly, Adam’s point here acknowledges that the people who fund schools have a clear interest in holding those schools accountable. Guess what–when we’re talking about education that’s supported from public coffers, then the people funding the schools are all of us taxpayers, and we all have an interest in holding schools accountable for serving the public good.

Taxpayers may have an interest, but not the ability to hold schools accountable. Just try withholding your taxes when you don’t like the local schools.  I don’t think the police will be impressed with your explanation.

One of the most difficult problems in government is accountability.  There is a reason that even farmers who don’t need it continue to get subsidies, that sugar prices here are absurdly high, that the tax code is cluttered with special breaks, and that earmarks for pet projects have exploded.  All of these things are funded by “all of us taxpayers,” and we certainly “all have an interest” in holding our Congress accountable for serving the public good and not running up a deficit.  But the costs are diffuse and small to any single taxpayer, while the benefits are large and concentrated among organized groups. 

The key differences between a true system of school choice and a government run system are that individual taxpayers fund students in a system of choice, and the government funds schools in the current system.  The ability and incentives to hold schools accountable in such a system are almost non-existent, and it shows.  The costs are diffuse, and therefore not readily apparent, and the benefits are concentrated among the education establishment, which uses the political system to its advantage.  

In order for taxpayers to hold the schools accountable, they must unite on a single issue area and work together through a difficult political system for very definite goals.  Needless to say this does not happen.  It is too difficult, and the costs and potential gain are too diffuse (and non-selective) to overcome collective action problems.  Even in a charter system, this would hold true.  And even within a student-based/attached funding or voucher system, the government would fund students, meaning that costs and responsibility would still be diffuse and therefore the incentives and ability for taxpayers to hold schools accountable would be low. 

A tax credit system creates the most powerful system of incentives to hold schools accountable because individual taxpayers fund students.  Parents have the ability and incentive to hold schools accountable by going elsewhere with ease, because the money follows their child.  And taxpayers have the ability and incentive to hold schools and SGOs accountable because they know where their money is going and can take it to other schools or SGOs with ease. 

An education tax credit system relies on the incentives, knowledge, and actions of thousands of parents and taxpayers, ensuring that the interests of individual parents, families, communities, and the diverse public at large are met.  This system makes schools accountable to the largest number of stakeholders possible, and provides the most effective means of holding schools accountable to each stakeholder: exit. 

This is true public accountability.  And this system truly serves the public good by ensuring a basic education for all citizens – an education that respects the diversity of the public to which that good is provided. 

Sara proclaims that she supports choice in education, and that she doesn’t “care if you want to send your kid to a Montessori school, a single-sex school, a military school, a religious school, or a billingual Esperanto immersion school.”  Wonderful news, I say!

 “But,” Sara says, “I do care, as a taxpayer, that schools using my tax money meet basic health and safety standards, don’t discriminate, and teach kids sufficient math and verbal/literacy skills to contribute to the economy and have a decent shot in life. That’s why we need both parent choice and public accountability. And it’s why education tax credits just don’t cut it.” 

First, any educational facility would be required to meet basic health and safety standards under existing laws.  Tax credits don’t magically eliminate all previously passed regulations.    Second, all tax credit programs and proposals with which I am familiar already prohibit discrimination on the grounds of race and national origin.  Third, I can’t imagine how tax credits could result in lower basic math and verbal skills than those our current system is producing – but, even such an unfounded concern can be resolved with ease by requiring participating students to take some kind of basic achievement test, which current programs and proposals all do, and which most private schools do currently as well (however, it’s an unnecessary measure in any case – just look at all of the information on colleges).

There must be other, legitimate issues if Sara’s concern for the “public accountability” of education tax credits is to be taken seriously.  If these are the only problems Sara has with an education tax credit system, then she should unite with us behind ETCs!