January 14, 2009 10:15AM

How to Cut Taxes, Balance Budgets, and Help Kids

Thanks to the economic crisis and its impact on state revenues, most states are faced with a tough and unpopular set of choices: which and how many services to cut; how much to raise taxes? Wouldn't it be great if there were a way to cut taxes while expanding the services available to citizens? As it happens, there is.

I'm in Las Vegas this morning to present a new study showing how broad-based education tax credits would impact Nevada's finances. Over the first 10 years, I estimate the program would save nearly a billion dollars, and that by its fifteenth year in operation it would be saving $426 million annually. Not only that, per pupil spending in the state's public schools would actually rise over time under this program.

One of the most interesting things about this study was how easy it was to complete, and how easily it could be reproduced in other states. Last year, economist Anca Cotet and I published a Cato Institute paper presenting a generalized Excel spreadsheet tool for calculating the fiscal impact of education tax credits on any state's finances, based on some state-specific data input by the user. Using that tool (and in fact refining its model a little) I was able to run the numbers for Nevada quite easily. The only new math in this paper is the calculation of the marginal cost of public schooling in Nevada (the amount district spending rises in response to the enrollment of one additional student, and the amount it falls when enrollment declines by one student).

So if there are any legislators out there fretting over how to balance their state budgets in these difficult economic times, consider education tax credits: they cut taxes while dramatically expanding the range of educational options available to families. And they're an increasingly bipartisan idea.