News Release

February 22, 2001

Study: Tax credits will create the best education marketplace
Vouchers less effective at promoting choice, competition and parental accountability

WASHINGTON—President Bush's education plan would create federally funded vouchers for children in failing schools, but are vouchers the best way to promote a competitive education marketplace that maximizes choice? A new study by the Cato Institute argues that universal education tax credits would do considerably more than vouchers to create a true education marketplace. Tax credits let parents deduct private school tuition and other education expenses from their state tax bills and allow businesses and individuals to write off donations to scholarship-granting organizations on a dollar-for-dollar basis.

"Not all market-inspired education reforms are intrinsically or uniformly effective," writes Andrew J. Coulson, a senior research associate at the Social Philosophy and Policy Center, in "Toward Market Education: Are Vouchers or Tax Credits the Better Path?" "They can succeed only to the extent that they support the conditions for a thriving education market and ensure that all families have access to that market." To determine which reform proposal has the best chance for success, Coulson compares targeted and universal vouchers to education tax credits on six criteria: parental choice, direct parental financial responsibility, freedom for educators, competition among educators, profit motive for educators and universal access.

"The single most important difference between education tax credits and vouchers is that tax credits do a better job of preserving direct parental financial responsibility," says Coulson, author of Market Education: The Unknown History. "Parents who benefit from tax credits against their own children's educational expenses are still directly paying for those expenses, and so are encouraged to be more involved in and more demanding of their children's education."

"The second most significant advantage of tax credits is that they avoid use of public money," Coulson says. "Since all the money involved in these programs is privately and voluntarily spent, issues of church-state entanglement and necessary public oversight of public spending are rendered moot."

The one area where vouchers hold the advantage, Coulson says, is in promoting universal access to good schools. Voucher dollars can be funneled more directly to needy families, but at the cost of increased government intervention in schools that accept vouchers. "Tax credits are the better alternative," Coulson concludes. "They are more effective at putting into place the freedoms and incentives necessary to the effective operation of the market, offer greater resistance to new regulation, decrease the risk of fraud and corruption, and avoid problems that might arise from state funding of religious schools."

"Toward Market Education: Are Vouchers or Tax Credits the Better Path?"