Commentary

This Tax Credit Pays

Even as the debate continues on whether vouchers help improve education, New York lawmakers should have an eye on another important benefit of programs that make it easier for families to choose private schools: huge savings for state and local governments.

New York state faces a budget hole as high as $2.5 billion this year, with even bigger shortfalls in the years ahead - and local governments are strapped, too.

Meanwhile, the economic slowdown will prompt many families who can no longer afford both taxes and private-school tuition to move the kids into public schools - adding to the pressure. The schools will need to spend more - even as tax revenues drop.

Because so many New York kids now attend private schools, governments face a potentially massive rise in costs from a spike in public-school enrollments.

Public schools in Manhattan have already reported a surge in interest from private-school families hit hard by the financial meltdown. The trend is likely to move upstate as the economy dips into recession.

At current levels of per-pupil spending, just a 1 percent drop in private-school enrollment will put New York governments on the hook for about $100 million a year. A 10 percent swing means about $1 billion more in school spending.

A look at the numbers explains why: New York has one of the largest private-school populations in the country, with almost 16 percent of all K-12 students opting out of government institutions. And when all costs are counted, the state’s public schools spend a whopping $20,000 per pupil.

Thankfully, there’s a way to avoid getting slammed by huge new demands for public-school spending while saving even more money and improving education: A broad-based, moderate-sized education tax credit would help families stay in private schools, preventing their children from burdening taxpayers with the public school’s (much greater) price tag. The credit would also help others make the switch to the private sector, easing the burden on taxpayers even more.

Education tax credits reduce the amount a taxpayer owes the government for each dollar he spends on his own child’s education or on scholarships for children who need them. That money comes straight off a person’s tax liability, so it’s a dollar-for-dollar benefit: You can either pay it to the government or use it on the kind of education you want to support. Tax credits for donations to scholarship organizations help support school choice for lower-income families, while personal-use credits help middle-class families send their own children to a good school.

Education tax credits can make these trying financial times a whole lot easier for everyone.”

A recent Cato Institute analysis of model tax-credit legislation shows that New York stands to save more than $15 billion in the first 10 years. Fifteen years into the program, Empire State taxpayers would save an estimated $4.8 billion every year.

With such savings from a reform that injects proven parental choice and competition into education, it’s no surprise that tax credits are growing in popularity with US lawmakers of all parties.

When Florida’s donation tax-credit program became law seven years ago, only one Democratic legislator voted for it. This year, a third of statehouse Democrats, half the black caucus and the entire Hispanic caucus voted to expand that program.

Arizona, Rhode Island and Iowa all passed education tax-credit initiatives in 2006, and Pennsylvania expanded its existing program. The Arizona, Iowa and Pennsylvania bills became law under Democratic governors, and the Rhode Island business-tax credit was born in a Democrat-controlled Legislature.

The momentum is still building. A government fully controlled by Democrats in Iowa - governor and both legislative houses - actually expanded the tax-credit dollar cap by 50 percent in 2007. Just this year, Georgia passed a $50 million program with no family-income cap on student eligibility.

Gov. Paterson supports education tax credits because he knows school choice improves education and saves children from failing schools. Now he has billions more reasons to support it.

The Legislature should join with Paterson to help improve education and the state’s balance sheet. Education tax credits can make these trying financial times a whole lot easier for everyone.

Adam B. Schaeffer is a policy analyst at the Cato Institute’s Center for Educational Freedom.