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July 1, 2008
Policy Analysis no. 618

The Fiscal Impact of a Large-Scale Education Tax Credit Program

by Andrew J. Coulson

with a technical appendix by Anca M. Cotet

Andrew J. Coulson is the director of the Cato Insitute's Center for Educational Freedom. He is the author of Market Education: The Unknown History. Anca M. Cotet is an assistant professor of economics at Ball State University.

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In this paper we estimate the budgetary impact of the Cato Institute's Public Education Tax Credit model legislation on five states and present a generalized spreadsheet tool ("the Fiscal Impact Calculator") that can estimate the program's effect on any other state for which the necessary input data are supplied. It is estimated that, in its first 10 years of operation, savings from the PETC program would range from $1.1 billion for South Carolina to $15.9 billion for Texas. Illinois, Wisconsin, and New York are estimated to enjoy 10-year savings within that range.

Public Education Tax Credits reduce the state and local taxes owed by anyone who pays for the private schooling of an eligible child. Parents can claim credits for their own children's educational costs, and other taxpayers (including businesses) can claim credits when they pay for the education of someone else's child, either directly or by donating to a nonprofit scholarship-granting organization.

Full text of Policy Analysis no. 618

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