Commentary

Are Education Tax Credits on the Way?

By David F. Salisbury
June 22, 2002

School choice is an issue that continues to gain momentum. Ten years ago, the idea was advocated by a small cadre of policy wonks and economists. Since then, advocacy groups have formed all over the county. Today, at least 10 states offer parents a choice between public and private schools and more states are considering it. Recently, President Bush proposed tuition tax credits for parents who want to use private schools instead of government schools. And Congress is now considering a school choice bill that it wants to pass this year.

The House bill, sponsored by Bob Schaffer (R-Colo.) and several co-sponsors from both parties, gives tax breaks to people who contribute money to scholarships for local school children. The plan is based on similar programs in Arizona and Pennsylvania, and allows taxpayers lower federal taxes in exchange for donations to organizations that give scholarships to needy students in grades K through 12. The scholarships can be used at either public or private schools.

The Schaffer bill is a pared down version of President Bush’s proposal to help parents afford private school tuition. Originally, tax credit proponents had included tax breaks to help parents educate their own children. The current bill only provides tax breaks for contributions to scholarship-granting organizations. Parents must then apply to one of these organizations to be considered for a tuition scholarship.

Private scholarship organizations have sprung up nation wide, mostly in reaction to dissatisfaction with the public schools. Currently, more than 100 local and state groups exist to give tuition aid to needy school-aged children. These organizations, which operate exclusively on private donations, have helped over 100,000 needy children attend private schools chosen by their parents. According to Children First America, more than 1.2 million families have inquired about tuition aid. The house bill would have a tremendous affect on the ability of these organizations to help disadvantaged children attend better schools.

Several states have already adopted tax credits as a way to offer greater choice to parents and instill healthy competition into a stagnant public school system. Since 1998, Arizona’s tax-credit program has raised over $31 million and provided 18,000 scholarships to low-income students. Florida, Illinois, Pennsylvania, and Minnesota also offer tax credits for private or public school expenses. Research on the effects of school choice programs continues to show positive gains being made by students who participate in school choice programs. A recent Harvard University study shows that even students who remain in public schools benefit from improvements caused by increased competition.

Rep. Schaffer and other reform advocates are right in thinking that increased choice and competition is what is needed to fix American education. But they should be cautious about taking action at the federal level. A federal tax credit may turn out to be a mixed blessing if it encourages further federal intrusion into the business of education.

Education should be a local or state matter. It’s far healthier for 50 different states to be experimenting with school choice programs than for Washington to propose a one-size-fits-all solution. Moreover, the U.S. tax code is already too complicated. To reduce the federal tax rate would be a simpler way to allow parents to assume financial responsibility for their children’s education.

Nonetheless, in a political climate driven by enthusiasm for national standards, a carefully crafted federal tax credit may help neutralize Washington’s role in what should be a state matter. While the Schaffer tax credit won’t revolutionize education, it may motivate states to take similar actions, expanding educational freedom for parents and children. The emergence of the Shaffer bill in Congress shows an increasing agreement that it is permissible to empower parents to choose the schools their children attend. Now states need to pick up the ball and begin to lead, as they should, on the issue of school choice.

David Salisbury is the director of the Center for Educational Freedom at the Cato Institute.